Extension of Circuit Breaker could worsen contraction

  • Extension of Circuit Breaker could worsen contractionExtension of Circuit Breaker could worsen contraction
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The Singapore government has extended its circuit breaker measures to curb the spread of the coronavirus (COVID-19) by another four weeks to 1 June 2020, with a further injection of S$3.8 billion to aid businesses which raises total state spending to S$63.7 billion (12.8% of GDP).

These support measures include extending the Job Support Scheme (JSS) which subsidises 75% of the first S$4,600/month of wages; waiving foreign worker levies for May and a rebate of S$750 to employers for each foreign worker on their payrolls.

The extended circuit breaker will also expand the scope of non-essential services to more retail and services outlets such as hairdressing, barber shops and standalone F&B shops. These controls have effectively put a virtual standstill to many businesses for seven out of 11 weeks for the second quarter.



Our forecast

The further possibility of only a gradual easing of restrictions after 1 June 2020 suggests that there will not be a quick resumption of normal economic activities. For the construction sector, it will mean another month of lost revenues and delays to project completion timelines for many construction firms. We forecast the construction sector to contract by 15% in the second quarter while full-year growth outlook has been downgraded to -6.0%, down from the previous forecast of a positive growth of 0.7%.

We have also revised our growth forecast for 2020 for the service sector to -4.5% in 2020, down from our previous outlook of -3.1%. The key drag will be from the wholesale and retail trade, hotels and restaurants, transport and storage as well as business services. With an estimated 70% of Singapore’s retail sales cluster being shuttered during the circuit breaker period, it will have direct negative knock-on effects on consumer spending and retail sales growth especially for 2Q20.

While many major manufacturing clusters have been spared from the circuit breaker measures, our forecast is for a 3.8% contraction for the year due to the current disruption in global supply chains and negative demand shocks from lockdowns. In the light of the additional circuit breaker measures, we have revised our forecast for Singapore’s overall growth for 2020 to -4.0%, down from our previous estimate of -2.5%. Further downside risk to the GDP is still on the cards, depending on how soon the circuit breaker restrictions will loosen beyond 1 June 2020.

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