The Ministry of Trade and Industry (MTI) has revised its earlier forecast for 2020 GDP growth to -0.5 to 1.5 per cent, in a statement issued on Feb. 17.

The previous forecast announced in November 2019 was 0.5 to 2.5 per cent.

This was in view of "a modest pickup in global growth" at the time, as well as a projected recovery in the global electronics cycle.

MTI has now revised its forecast to factor in the likely impact of the Covid-19 outbreak, pointing to dampened growth prospects in China and other affected countries, and how this will create a "knock-on impact" in Singapore and other regional economies.

Impact of Covid-19 outbreak in China

MTI's statement explained that the backdrop to its forecast is that China's GDP growth is expected to come in lower than earlier projections.

One reason for this was a "pullback in household consumption" due to the lockdowns and travel restrictions in several major Chinese cities imposed to contain the spread of Covid-19.

Another reason to expect slower growth in China is disruption to industrial production, due to work stoppages.

Economic outlook for Asian economies

The slower growth in China is then expected to create knock-on impact for Singapore, and for other regional economies, such as Japan, Thailand, and Malaysia, which are directly affected by the Covid-19 outbreak.

This knock-on impact is expected to come from reduced tourism, reduced import demand, and disruptions to supply chains.

This is on top of direct impact expected from a "drop in domestic consumer sentiments" which will slow the growth of private consumption.

Possibility of recession in Singapore

There has been talk of a possible recession in Singapore due to Covid-19.

MTI's statement explained three possible ways in which Singapore could be impacted:

1. Weaker growth outlook in Singapore's key final demand markets, which includes China. This is expected to affect outward-oriented sectors like manufacturing and wholesale trade.
2. A sharp fall in tourist arrivals, especially from China. This has affected players such as hotels, travel agents, cruise operators, as well as those in the air transport sector.
3. Singaporeans cutting back on shopping and dining out. This will affect firms in retail and food services.

However, the statement also pointed out "pockets of relative strength in the Singapore economy".

One example is the construction sector, which has been experiencing a rebound in construction demand since 2018.

Also, the information and communications sector is expected to see "sustained enterprise demand for IT solutions".

With this in mind, MTI expects that GDP growth for 2020 will come in at around 0.5 per cent, which is the mid-point of the forecast range of -0.5 to 1.5 per cent.

"Uncertainties in the global economy remain"

While MTI's assessment of US and Eurozone economies "remains broadly unchanged", it also highlighted that "uncertainties in the global economy remain".

• The Covid-19 outbreak could well be "more widespread, severe and protracted than anticipated"; this would have a larger-than-expected impact on global consumption, supply chains, and production.
• US-China trade relations remain uncertain, in spite of a Phase 1 trade deal, as the next phase of negotiations will involve "more contentious issues".
• Geopolitical tensions in the Middle East could affect financial and commodity markets, with possible spillover effects on the region and Singapore.

What can be done?

• The Singapore Tourism Board (STB) has set up the Tourism Recovery Action Task Force (TRAC) to map out recovery strategies and plans for tourism in Singapore.
• It has been announced that the government will work towards safeguarding jobs and minimising retrenchments by working with unions and companies.
• Tax rebates, rental waivers and wage support for companies can be expected in the upcoming Budget 2020 announcement on Feb. 18.

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