Guru Gyan
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Guru Gyan

Singapore Enters A Technical Recession. So How Did That Happen?

The pandemic, which has taken a toll on a lot of countries around the world, has pushed Singapore to the edge as the country enters a technical recession.

What Happened?

Singapore has entered into a technical recession as the Ministry of Trade and Industry said that Singapore’s gross domestic product (GDP) plunged an annualised 41.2% in the second quarter, which is the biggest quarterly decline on record.

Other major details of the country’s GDP report showed:

Manufacturing declined 23.1% on a quarter-on-quarter basis, compared with growth of 45.5% in the first quarter. The sector grew 2.5% on a year-on-year basis, primarily because of strong output in pharmaceuticals.

Construction tanked 95.6% on a quarter-on-quarter basis and slumped 54.7% year-on-year as lockdown restrictions severely damaged the sector.

The services sector shrank an annualised 37.7% in the quarter and 13.6% year-on-year as tourism businesses, such as airlines, hotels and restaurants were impacted by travel restrictions and the so called “circuit breaker” measures from April 7 to June 1.

What exactly is an economic recession?

A country is in a recession when its GDP has been in decline for two or more quarters (six months or more). A lot of things act as indicators when a country is in a recession such as a surge in unemployment, a slump in the stock market and a plunge in the housing market.

Exports & Economy

Singapore is the first country in Asia to report its second-quarter GDP and it has come below the expectations of the analysts. This kind of set a precedent for other countries in Asia, showing how far the pandemic has affected us. Also, Japan’s GDP is anticipated to plunge more than 20% on an annualised basis in the second quarter from the previous three months.

If you take a closer look at why these countries’ economies are dwindling, you can see that these economies are reliant on exports. According to a survey done by Statista, in 2019, Japan had an export value of $705.53 billion while Singapore’s export value stood at $390.76 billion. So, one could argue that the restrictions in exports due to the pandemic have pushed down global trade, resulting in the fall in the GDP of countries such as Singapore. Even though Singapore has returned to normalcy in June, the country is still struggling to recover from the damage done by Covid-19.

Singapore’s Trade and Industry Minister Chan Chun Sing himself has said, “…The road to recovery in the months ahead will be challenging. We expect recovery to be a slow and uneven journey, as external demand continues to be weak and countries battle the second and third waves of outbreaks by reinstating localised lockdowns or stricter safe distancing measures…”

On the other hand, China’s economy grew 3.2% in the second quarter following a record plunge. This number is better than what the experts had estimated and this points toward a V-shaped recovery (i.e) a sharp decline followed by a swift recovery.

China returned to normalcy in April and the country has logged growth in the second quarter. As stated in Statista, the country ranked first in exports in 2019 with an export value of around $2.5 trillion. So, does this mean that other export-dependent countries such as Singapore and Japan will be able to record the same type of recovery or will they continue to struggle in the upcoming quarters?

The answer to this question can be only answered based on their economic activity in the coming months and how they contain the spread of COVID-19.

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