How’s the economy?

[The Singapore economy grew by only 0.7% in 2019, which is the slowest in a decade.] [Growth for 2020 is expected to be ‘modest’] - coming in at between 0.5% to 2.5%, but that is a pretty huge range / buffer of 2%.

We have to bear in mind that this ‘expected’ growth rate was done as an estimate before the coronavirus outbreak.

Unemployment statistics have also been slowly creeping up over the years and stands at 2.3% last year.

How will the Coronavirus outbreak hit the economy

One most obvious sector that will be hit is the tourism sector. Several territories including Qatar, Kuwait, South Korea, Indonesia, Taiwan & Israel have issued travel advisories / precautions against visiting Singapore.

Singapore has also placed travel restrictions on Mainland China visitors. [In 2018, 18.5 million tourists visited Singapore, of which, the largest group, of 3.4 million, was from China.]

Hotels, shopping centres, attractions, the Integrated Resorts - these will all be affected.


The fear of going outdoors & crowded places will also affect various other sectors as people try to minimise exposure and contact such as

1. Restaurants

2. Retail

3. Transportation (Grab / Taxi Companies)

4. Tuition / Enrichment

Companies with their workforce comprising of a large percentage of Chinese workers may also be experiencing labour shortages as their workers are either stuck back in China due to travel restrictions OR facing quarantine.

There are also multiple repercussions with the Chinese economy coming to a halt - e.g. e-commerce companies with deliveries coming in from China, reduced purchases of Singapore exports from China.

Some bright spots

1. Countries affected by the Coronavirus outbreak (such as China) are considering a combination of both monetary & fiscal stimulus to boost economic growth.

2. There appears to be some improvement in the US-China trade war front, with a rollback of some tariffs

3. Certain sectors locally are not significantly affected e.g. Construction

What can we expect from Budget 2020

Some of the measures I stated in my [previous post on 17 August 2019] will have a higher certainty of being implemented now with the impacts of the Coronavirus outbreak.

1. Transfer Payments to ALL firms & households

For firms, the goal will be for the government to help maintain employment levels. There will likely be transfer payments similar to what was offered in the Jobs Credit Scheme introduced in 2009’s Resilience Package.

The Jobs Credit Scheme provided employers with a cash grant to cover 12% of the wages paid out, subject to a $2500 cap on wages.

Effectively, such a policy acts as a subsidy for firms and helps firms to keep their wage bill low and potentially reduces or perhaps even eliminate the need to carry out retrenchment in this case.

For individuals, a 1-time special GST cash-voucher could potentially be given, with varied amounts given depending on income levels. Workfare Income Supplement Payouts could also be increased for a year.

2. Extra Transfer Payments to Specific Sectors Sectors hit by Corona-virus outbreak

The government may provide relief to sectors like tourism, transport, hotels, retail etc. through perhaps a more aggressive and targeted relief e.g. 40% wage subsidy of up to $3000 salary cap

A one-time payment ranging from $5000 to $10000 may also be given to SMEs with business activity (e.g. hiring at least 3 workers) in these specific sectors to help firms cope with cashflow issue.

3. Tax-relief

There will likely be a one year tax rebate on both corporate income taxes and personal income taxes, with a cap.

4. Helping firms improve cash-flow

The government may loosen OR expand some of the existing government financing schemes through Enterprise Singapore to make it easier for firms to actually obtain financing during this period to improve cash-flow. These loans will also likely be offered low interest rates and have lower eligibility requirements

5. Spending more on infrastructure

Unannounced infrastructure projects could be announced ahead of time while infrastructure projects due to start later could be brought forward. This will provide a boost to the construction sector.

6. Increased recruitment in the public sector

There could be increased hiring in sectors whereby it makes sense to do so given the synergies in policy-making.

For example, I would expect there to be increased general hiring for

• Childcare, Pre-school & early childhood education

• Healthcare

There could be plans to provide a ‘scholarship’ for mid-career changes for those who lost their jobs or are ‘structurally’ unemployed to undergo training and actually get paid during the training, so that they can now be re-employed in these various sectors of the economy that will see future growth.

Conclusion

We have always adopted a prudent fiscal policy, to build up a strong buffer and reserves for precisely moments in time like this. The government will likely carry out a strong expansionary fiscal policy stance this round, with a significant expected budget deficit this year. There will be a mixture of measures both in addressing long-term structural issues such as the need to increase innovation, productivity and workers’ skills as well as to address cyclical economic headwinds such as the recent stagnation in our exports and more immediate threats that the Coronavirus episode will bring about to tourism-related sectors. We also expect that MAS will move to 0% appreciation of the exchange rate in the April review.