Singapore downgraded its 2020 gross domestic product forecast for the third time on Tuesday, the trade ministry said, as the bellwether economy braces for its deepest ever recession. The city-state lowered its GDP forecast to a contraction range of -7% to -4% from the prior range of -1% to -4%.

Singapore's economy shrank 0.7% year-on-year in the first quarter and 4.7% on a quarter-on-quarter, a less severe decline than advance estimates, although officials and analysts warned of more pain ahead.

COVID-19 Uncertainty

"There continues to be a significant degree of uncertainty over the length and severity of the COVID-19 outbreak, as well as the trajectory of the economic recovery," said Gabriel Lim, permanent secretary at the ministry of trade and industry.

Recession
Recession Pixabay

Following the news, central bank chief economist Ed Robinson said monetary policy remains unchanged and will next be reviewed in October, as planned.

Singapore also downgraded its 2020 forecast for non-oil domestic exports to -4.0% to -1.0%, from -0.5% to 1.5% previously. Exports have been a rare bright spot for the economy in recent months mainly due to a surge in demand for pharmaceuticals.

That demand was also seen in factory data on Tuesday with industrial output increasing 13% in April on a year-on-year basis, as pharmaceuticals production more than doubled.

Price Gauge Hit 10 Year Low

Singapore's main price gauge contracted for the third consecutive month in April, falling 0.3% and hitting a fresh 10-year low.

Analysts expect the trade-reliant economy to see a deeper contraction in the second quarter due to a two-month lockdown, dubbed a "circuit breaker" by authorities, in which most workplaces closed to curb the spread of the novel coronavirus.

The city-state has among the highest number of infections in Asia and has said that easing of the lockdown from next month will only be done gradually.

Economic Package and Possibility of Recession

"The downward revision...implies a significant deterioration in the second-quarter momentum due to the circuit breaker period as well as a weak recovery trajectory," said Selena Ling, OCBC Bank's head of treasury research and strategy.

The government first flagged the possibility of recession in February when it cut its 2020 GDP forecast to -0.5% to 1.5%, from 0.5% to 2.5% previously.

Singapore's finance minister is set to deliver the latest in a string of multi-billion-dollar economic packages to offset the hit to businesses and households from the pandemic later on Tuesday.