The Monetary Authority of Singapore called a 2020 recession in its latest policy statement, urging the city-state to brace for business and job losses.
The MAS forecasted that Singapore in 2020 would face economic contraction of 1 and 4 percent due to the ongoing pandemic. Based on existing trade data, it predicts a 2.2 percent contraction in the first quarter after 1 percent growth in the previous quarter. Travel-related sectors such as aviation and tourism, consumer-facing sectors and construction were amongst the impacted industries highlighted.
«Looking ahead, global GDP growth is expected to stall or even contract in H1 2020, given the significant interruption to economic activity in most of Singapore’s major trading partners,» Singapore’s central bank and financial regulator said in a statement.
«The ongoing wave of COVID-19 outbreaks will continue to dampen global growth beyond the first half of the year, even as China is showing signs of recovery to normalcy.»
Inflation Risk
The MAS named «temporary upward pressure» to imported food prices as a source of inflation driven by supply chain disruptions. But it was otherwise confident that near-term inflation would remain in check, noting that disinflationary pressures were emerging.
Favorable drivers include easing oil prices, softer domestic labor conditions due to job losses and easing wage growth, and subdued retail rents. In addition, Singapore’s government will also freeze all its fees and charges for a year to further restrain inflation.
Monetary Policy
In light of the headwinds, the MAS will look to adopt a stable monetary policy by adopting a «zero percent per annum of appreciation of the policy band», referring to «S$NEER» – a policy tool used to compare the Singapore dollar value against a weighted basket of its trading partners’ currencies.
Recently, U.S. dollar strength coupled with an economic slowdown has led the Singapore dollar to weaken against this basket but remains at what the MAS calls «the mid-point of the policy band»
«Fiscal, monetary and regulatory support in a number of major economies will help to mitigate the economic fallout, but is unlikely to change this weak outlook,» it added. «Overall, major uncertainty remains. The recovery in the global economy will depend on the epidemiological course of the pandemic and the efficacy of policy responses.»
