In Asia, the COVID-19 outbreak is likely to dampen the growth prospects of China and other affected countries this year. Singapore’s Ministry of Trade and Industry (MTI) has downgraded the GDP growth forecast to -0.5 to 1.5 per cent. Lee Kok Leong, executive editor, Maritime Fairtrade, reports
In China, GDP growth in 2020 is expected to come in lower than earlier projected due to a pullback in household consumption as a result of the lockdowns and travel restrictions implemented in several major Chinese cities to contain the spread of the virus. Industrial production has also been disrupted because of work stoppages and delays arising from these containment measures.
These developments in China will, in turn, have a knock-on impact on regional economies, including the ASEAN economies, through lower outbound tourism and other import demand from China, as well as disruptions to supply chains. Regional economies directly affected by the COVID-19 outbreak, such as Japan, Thailand and Malaysia, may also experience a drop in domestic consumer sentiments, and hence private consumption growth.
At the same time, uncertainties in the global economy remain. First, should the COVID-19 outbreak be more widespread, severe and protracted than anticipated, there could be a sharper pullback in global consumption, as well as more prolonged disruptions to global supply chains and production. A sharper-than-expected slowdown in the Chinese economy arising from the outbreak will also negatively affect global trade and economic growth.
Second, notwithstanding the Phase 1 trade deal, US-China trade relations remain uncertain, especially as they turn to more contentious issues in the next phase of their negotiations. Third, geopolitical tensions in the Middle East could affect financial and commodity markets, which will have negative spillover effects on the region and Singapore.
Against this backdrop, for 2020, Singapore’s Ministry of Trade and Industry (MTI) has downgraded the GDP growth forecast to -0.5 to 1.5 per cent, with growth expected to come in at around 0.5 per cent, the mid-point of the forecast range. The outlook for the Singapore economy has weakened since the last review in November. In particular, the COVID-19 outbreak is expected to affect the Singapore economy through several channels.
First, outward-oriented sectors such as manufacturing and wholesale trade will be affected by the weaker growth outlook in several of Singapore’s key final demand markets, including China. Firms in these sectors could also be affected by supply chain disruptions arising from prolonged factory closures and labour shortages in China as a result of the measures implemented by the Chinese government to contain the outbreak.
Second, the outbreak has led to a sharp fall in tourist arrivals, particularly from China, to Singapore. This has badly affected the tourism (e.g., hotels, travel agents and cruise operators) and transport (e.g., air transport) sectors. Third, domestic consumption in Singapore is likely to decline as locals cut back on shopping and dining-out activities. This will adversely affect firms in segments such as retail and food services.
Nonetheless, there are pockets of relative strength in the Singapore economy. These include the construction sector, which is projected to post steady growth given the rebound in construction demand since 2018. The information and communications sector is also expected to be resilient on account of sustained enterprise demand for IT solutions.