Singapore's economy slipped into a technical recession after contracting over 40 percent in the second quarter compared with the previous quarter after being dragged down by weak external demand and coronavirus-led shutdown that almost halted trade completely. The news comes just two days after the ruling People's Action Party retained its power in the country's general election.
A technical recession means two consecutive quarters of quarter-over-quarter contraction of the GDP. The coronavirus-related lockdown almost brought the entire core sector of the city state to a standstill in the second quarter and may further continue to take its toll if the crisis continues to persist.
Biggest Contraction on Record
Singapore's GDP contracted an annualized 41.2% in the second quarter compared to the previous quarter, thus entering a technical recession, the Ministry of Trade and Industry said in a statement on Tuesday. This marks the biggest contraction on record and worse than the analysts' prediction. Economists polled by Reuters had forecast Singapore's economy to contract 37.4 percent on a quarter-over-quarter basis.
The Southeast Asian city state's GDP recorded a 3.3 percent decline in the first quarter of 2020, which pushes the economy technically into recession. On a year-over-year basis, Singapore's economy contracted 12.6% in the second quarter, worse than the 10.5% predicted by economists.
The situation was primarily worsened by a sudden halt in global trade owing to the Covid-19 outbreak that left the country's export-reliant manufacturing industry completely battered. The government now expects the country's full-year GDP in the range of -7 percent to -4 percent.
Coronavirus Wreaks Havoc
The economy contracted in the second quarter more because of the partial lockdown measures, which the Singapore government called the "circuit breaker" that was implemented to contain the spread of the virus. This saw the government temporarily shut down workplaces and closing schools.
The "circuit breaker", which only exempted the functioning of essential services, continued almost throughout the second quarter, with the government easing some rules only in early June. Singapore's economy is export driven, and was already been witnessing a slump due to a weakening global demand due to the pandemic. It further got impacted as businesses dependent on domestic consumption started feeling the heat due to the partial lockdown measures.
Although manufacturing activity increased 2.5 percent on a year-over-year basis in the second quarter, construction and services-producing industries contracted. Construction slumped 54.7 percent year over year, while services-producing industries declined 13.6 percent. Singapore government has already injected S$100 billion into the economy as stimulus measures but there is an upheaval in front of the re-elected People's Action Party to make the economy stand back on its feet once again amid the ongoing coronavirus crisis.