With its open and traditionally nimble economy, Singapore often plays a weathervane role for global trade trends. As such, the ill winds blowing across the city-state should worry policymakers worldwide.
According to statistics released today (July 14), Singapore saw a startling 12.6% annualized drop in gross domestic product (GDP) between April and June. Viewed quarter-to-quarter, GDP collapsed a whopping 41.2%.
That fall-off could dent confidence from Washington to Beijing, where the chatter from top government officials has been of heady, post-Covid economic revivals to come.
In Washington, President Donald Trump’s team may have dispensed with “V-shaped” recovery talk, but the spin certainly suggests a “U-shaped” rebound is afoot. China, too, is telegraphing a post-coronavirus return to brisk business.
Singapore’s dismal GDP numbers auger poorly for both those narratives. Though Moody’s Analytics was expecting a “quite dismal” reading, economist Steve Cochrane says the announcement was “worse than what we had expected.”
The reason economists like Song Seng Wun of CIMB Private Banking see Singapore as the “canary in the coal mine” for global demand is the varied and many drivers on which the city-state relies for growth.
And all are flashing trouble signs for what bigger, more systemically vital economic powers might soon face.
Manufacturing declines? Check. Activity in Singapore plunged 23.1% compared with a 45.5% pace in the previous three months. Construction? It nosedived 95.6%.
Services, meanwhile, dropped 37.7%, as airlines, hotels and restaurants largely shut down during the reporting period.
Singapore’s dismal performance came despite four fiscal spending packages in recent months, equivalent to about 20% of GDP.
The kind way to read Tuesday’s data is that these fiscal jolts “need time to permeate and cascade,” says economist Vishnu Varathan of Mizuho Bank.
Yet this assumes that Singapore is getting a firm handle on its Covid-19 troubles. In fact, the data doesn’t bear this out.
Singapore (population 5.8 million), has more than 46,000 cases, compared to 8,700 in neighboring Malaysia (population 32 million).
It assumes, too, that Singapore’s export-reliant economy will soon be exporting to recovering economies in Asia and worldwide.
China may be showing signs of revival, but the odds of it playing the locomotive role it did in 2008 and 2009 seem low.
Japan, meanwhile, is mired in yet another recession and the deflationary pressures Prime Minister Shinzo Abe pledged to eradicate since 2012 are reasserting themselves.
Southeast Asian neighbors Indonesia, Malaysia and the Philippines are also struggling to revive demand.
Europe is walking in place, at best, as the US rapidly becomes, literally, the “sick man” of industrialized economies as America’s number of Covid-19 cases zooms past 3 million.
Singapore’s condition is dire enough now, never mind where it might be three to six months from now if Covid-19 headwinds intensify.
The real significance of Singapore’s latest numbers, say economists at Dutch bank ING, is that this “is what’s going to happen to economies that have taken a similar sort of lockdown.” Or those reluctant to lock down just yet, but will soon be forced to do just that.
Bruised by Friday’s election results, Prime Minister Lee Hsien Loong now faces a serious economic reality check as Singapore confronts the pandemic’s full impact.
Four days ago, Singaporean voters elected in a record crop of opposition parliamentarians. The result partly reflects the glacial pace of economic change on Lee’s watch. Lee’s nearly 16-year reign has largely been about resting on his father’s laurels.
As prime minister from 1959 to 1990, family patriarch Lee Kuan Yew transformed a third-world former British colony into a global trade mecca and Asian financial center.
From 1990 to 2004, Prime Minister Goh Chok Tong served as a bridge from the father’s tenure to the son’s. Yet Goh’s time in office was largely spent increasing Singapore’s role as a trading power and growing the economy by wooing ever more foreign labor. Respectable growth followed.
The premiership of Lee the younger followed a similar playbook. Missing, though, were bold steps to move Singapore significantly up market into higher-value niche industries.
Yes, Lee has worked to build muscle in sectors including biotechnology, energy, health care, logistics and software. But no, those efforts have been too gradual and unimaginative to raise significantly Singapore’s innovation game.
In this way, too, Singapore serves as a cautionary tale for more advanced economies prioritizing stimulus over structural reforms. The US, Japan and China should all to differing degrees be paying attention to Singapore’s economy stopping on a proverbial dime.
If Lee’s government had acted more assertively since 2004 to increase productivity, support startups and build deeper safety nets to encourage entrepreneurial risk-taking, Singapore would arguably have bigger shock absorbers as global demand crashes.
And if Singapore had been less complacent about diversifying its growth engines, the city-state might be wooing even more Hong Kong-based multinational companies worried about China’s crackdown on the rival business hub.
Even the signals coming from Lee’s own team leave little room for optimism. “The road to recovery in the months ahead will be challenging,” admits Trade and Industry Minister Chan Chun Sing.
“We expect recovery to be a slow and uneven journey, as external demand continues to be weak and countries battle the second and third waves of outbreaks by reinstating localized lockdowns or stricter safe distancing measures.”
For Singapore, that means staying nimble with monetary and fiscal pump-priming. For the globe it means – as Singapore’s woes suggest – that a sustainable recovery could be a long, long way off.