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Singapore braces for economic fallout from the virus outbreak

From 1 February, all new visitors who travelled to mainland China within the last 14 days won't be allowed entry into Singapore, or to transit through Singapore. (PHOTO: Maverick Asio/SOPA Images/LightRocket via Getty Images)

By Francis Kan

SINGAPORE — The Singapore economy is likely to take a bigger hit from the coronavirus outbreak than it did from the Severe Acute Respiratory Syndrome (SARS) in 2003, as the number of cases continues to climb, experts say.

Song Seng Wun, an economist at CIMB Private Banking, said that Singapore’s small and open economy will feel the full impact from the coronavirus in the first quarter, with the hospitality sector, and potentially food services industries, bearing the brunt.

He expects the recovery will be equally sharp, though there is an added complication this time. The lagged effects on global growth after nearly two years of trade tensions between the US and China and other downside risks are expected to persist into the year, Song noted.

“Overall economic growth is expected to remain muted as the world continues to adjust to these risks,” he said. “For now we are not adjusting Singapore's 2020 GDP growth estimate of about 1.5%.” 

The Wuhan virus has so far killed over 500 people in China and spread to 27 other territories beyond mainland China, and the number of cases has exceeded that of SARS in 2003. Singapore has reported a total of 28 confirmed cases, making it the country with the second-highest number of cases outside China, behind Japan.

“The Wuhan coronavirus poses an emerging dark cloud to China’s growth stabilisation and the modest 2020 growth recovery prognosis for the regional economies including Singapore,” said OCBC’s head of research and strategy Selena Ling.

She said that while it is still early days, “it may be prudent to widen our 1-2% 2020 GDP growth forecast for the Singapore economy to 0-2% to accommodate any potential downside risks from the coronavirus”. 

Using SARS as a reference, OCBC estimated that its forecast for Singapore’s 2020 growth could potentially be cut by up to 0.5 and 1 percentage point from the baseline of 1 per cent to 2 per cent if the current epidemic lasts more than 3 to 6 months and constrains business and consumer confidence, restricts travel, and impacts productivity with workers under quarantine. 

Ling said the Monetary Authority of Singapore’s policy decision in April is unliked to be swayed for now. The central bank on Wednesday said in a statement there’s room within its exchange-rate band to accommodate an easing in the currency even as it maintains its policy outlook and said it’ll meet in April, as scheduled.

The coronavirus outbreak has also put a major damper on Singapore’s nascent rebound following the impact of the China-US trade war and a slowdown in the global manufacturing sector. 

“The Wuhan virus outbreak has cast a shadow on the prospects of a manufacturing and capex recovery, just as the clouds over the US China trade war were clearing,” Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye said. Countries that are more open and dependent on China trade and tourism will likely be negatively impacted, with Singapore and Thailand likely to be among the Asean economies most impacted, they said.

Maybank Kim Eng today lowered its 2020 GDP growth forecast for Singapore to 1.1 per cent from 1.8 per cent on the Wuhan virus shock. Their forecast is at the lower end of the Ministry for Trade and Industry’s forecast range of 0.5 percent to 2.5 per cent. “The Singapore government has taken drastic measures to contain the outbreak, which may hurt growth in the near-term,” Chua and Lee said.

Minister for Trade and Industry Chan Chun Sing on 27 January said that the ministry will help tourism-related businesses reduce business costs and retain workers through measures that could include property tax rebates, a reduction in the foreign worker levy for unskilled workers and the easing of working capital through a temporary bridging loan.

Deputy Prime Minister Heng Swee Keat, who is also the Finance Minister, said on 1 February the details of the measures to help these sectors will be announced during the Budget presentation on 18 Feb.

The analysts say some of the measures may be similar to the S$230 million SARS relief package unveiled by the government in April 2003.

“If the situation takes a turn for the worse, however, there is definitely fiscal room for more target relief measures to be announced post-budget on a needs basis,” Ling from OCBC said.

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