By Chester Yung and Philip J. Heijmans
(Bloomberg) -- The biggest economic uncertainty Singapore faces is something it can’t control — global demand for its goods and services — and in that case, additional government stimulus may not be the best remedy, according to the city-state’s trade minister.
“The greatest uncertainty and the downside risks at this point in time is the global external demand, and I don’t think fiscal measures alone will be the most appropriate for this kind of challenge,” Trade and Industry Minister Chan Chun Sing said Wednesday in an interview with Bloomberg TV’s Haslinda Amin.
Chan’s comments come as the city-state’s economy plunged into recession in the second quarter amid “circuit-breaker” restrictions to control the spread of the coronavirus. Gross domestic product declined an annualised 41.2% from the previous three months, the biggest quarterly contraction on record, data Tuesday showed. The contraction in demand caused by the circuit breaker was within expectations and “within our control,” according to Chan, though external demand is more uncertain.
The government is “very concerned that there will be a second wave, if not a third wave or recurring waves of infection across the world, which will cause the demand from these economies to further shrink,” he said. Around the region, some countries are seeing a resurgence in virus cases after lockdowns eased.
In light of this, it’s a “bit difficult for us to say when the upturn will come about,” but Singapore must position itself as a “safe harbour” for investment and talent, maintain trade links with all major economies and diversify its markets and sources of materials, Chan said.
“If we do all this well, then I think we are well poised for the recovery,” he said.
Singapore’s government has pledged about S$93 billion ($67 billion), or nearly 20% of GDP, in stimulus to shore up troubled businesses and households and prevent a surge in retrenchments.
Chan said the government must help some industries rethink their business models for a post-pandemic world, singling out tourism, aviation, and conference and exhibition sectors as industries that need to adapt their core strategies.
“It’s not just waiting for demand to pick up again as for some sectors, where the business models are still relevant. There are also sectors where we will need to develop new business models,” he said.
One of the senior ministers in Prime Minister Lee Hsien Loong’s government, Chan said he sees change coming to the cabinet after the July 10 elections. The ruling People’s Action Party maintained a commanding majority in parliament with 89% of seats, though that was its worst-ever performance. The party garnered 61.2% of the popular vote, lower than the last election in 2015 and only slightly more than its all-time low in 2011.
Given that some ministers have retired, changes to the cabinet can be expected, though that’s for the prime minister to decide, according to Chan.
“We have from the onset said that this will be a tough election, because many businesses are suffering, many workers are suffering and the uncertainties of the future are enormous,” Chan said.
The PAP will work with the opposition Workers’ Party, which won an unprecedented 10 seats in parliament, to tackle the current crisis, he said.
“Regardless whether it’s opposition parties or the PAP, we all have to work together to transcend the challenges of the current moment,” Chan said. “I think the opposition will also join the PAP in making sure that Singapore remains united and cohesive because the challenges that we are confronting now is not between the PAP and the opposition, the challenges that we are facing now is as one country, how do we ride out the crisis and emerge stronger.”
Regarding Hong Kong, Chan noted that investors have been watching the difficult situation in the territory, which has been caught up in the deteriorating relations between the U.S. and China, as well as a sweeping national security law that Chinese leaders passed several weeks ago.
“I think there will be capital flows from Hong Kong to other parts of the world because of this latest legislation,” Chan said, responding to a question on whether Singapore would see any inflows of capital or people. Even before the legislation, “I think many people would be considering their options as to how to diversify their portfolios” amid risks from the pandemic and rising protectionism.
(Updates with minister’s comment on elections in 11th paragraph)
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