The Worst Recession: Singapore’s GDP Shrunk by 5.8% in 2020

Hong Kong’s South China Morning Post, reported on January 4 that Singapore’s economy contracted less in the fourth quarter of 2020 because business activities continued to improve, and restrictions were relaxed in the context of declining community infection cases. Estimates released by Singapore’s Ministry of Trade and Industry (MTI) showed that in this export-dependent urban country, gross domestic product (GDP) in the fourth quarter contracted by 3.8% year-on-year, while the third quarter contracted by 5.6% year-on-year.

In general, Singapore’s economy declined by 5.8% in 2020, which was slightly better than MTI’s forecast of a significant contraction of 6.0% to 6.5%. This was Singapore’s worst recession since its independence, as well as the first full-year contraction since 2001. In the aftermath of the Internet bubble burst in 2001, Singapore’s growth fell by 1.1%.

But economists believed that the decline in economic contraction in the fourth quarter meant that the economy was ready for recovery. Excluding seasonal factors, quarterly growth slowed to 2.1% from 9.5% in the third quarter. However, they cautioned that this would largely depend on the speed of the global vaccination campaign and the performance of Singapore’s major trading partners. Singapore was one of the first Asian countries to start vaccinating its population. Their health care workers are currently being vaccinated and the elderly are expected to start being vaccinated next month.

An economist from Jinying Research Department of Malayan Banking said that the manufacturing industry boosted economic activities in the fourth quarter due to the surge in demand for semiconductors and pharmaceuticals. She said the construction industry was recovering, but also reminded that it may remain below the level before the pandemic, while the service industry was facing a “slow and uneven” recovery.

Selena Lin, head of treasury research and strategy at OCBC Bank, said that the under-performed tourism, food and beverage and retail industries would be “gradually improved” in Singapore’s move to further relax restrictions since December 28 last year. After the restrictions were relaxed, social gatherings of eight people could be allowed. Lin said that in the absence of overseas tourists, this could buy some time for the industry.

Expected Singapore’s growth rate to be 4% to 6% in 2021, she also said that although the government adopted a stimulus package equivalent to 20% of GDP to help businesses and citizens survive the pandemic, some small businesses in this island country would still struggle to survive. Lin also said: “Business and consumer confidence is still lower than before the pandemic, partly because of the weakening of the labor market.”