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Why You Are Bodoh If You Believe MTI’s 2020 GDP Growth Forecast

I don’t know what the statisticians at Ministry of Trade and Industry (MTI) are smoking but I really think CNB should investigate and drug-test all of them including the Minister, Iswaran. It’s obviously very high quality stuff. I refer of course to MTI’s press release stating that they had lowered their 2020 GDP growth forecast to the range of -1 to -4%.

No doubt more credulous Western pundits, like Adrian Wooldridge of the Economist magazine, will be rushing to hail Singapore as having escaped the worst of the economic fallout from Covid-19 due to the wisdom of its government. In their opinion a totalitarian state run by an enlightened hereditary despot can do no wrong as long as these sycophants do not have to abide by the same restrictions as the citizens of that county.

However the devil as usual was in the details. Looking at the figures for quarter-on-quarter seasonally adjusted annualised growth, these showed that the economy contracted by 11% in the first quarter 2020. But , even worse, construction fell by 23% and services by 16%. The only saviour was manufacturing which rose by 4.2%.

The first quarter was before the coronavirus lockdowns started. There were still a few tourists and convention visitors coming to Singapore. In fact, apart from Italy, the rest of Europe, the UK and the US were barely affected till mid-March and people were still unaware of the storm that was about to hit them. In March many of the factories in these countries started to shut down, total lockdowns were imposed in Europe and now the UK and many parts of the US. It is easy to see GDP falling by over 30% in these countries before recovering even with the unprecedented Government support programmes.

With no cushion from manufacturing in the second quarter the quarterly annualised fall in GDP is likely to be over 20%. The Resilience Budget is not likely to make much of a difference. It is noteworthy that the Government only brought out its Resilience Budget after the UK in particular had announced a support package and that it seems to be copied almost measure by measure from the UK one. So much for $2 million ministers! Hopefully Lee Hsien Loong was able to call on his wife’s estimated $100 or $200 million expertise. The actual additional spending in the Government’s Resilience Budget is only $17 billion or some 3.4% of GDP. This is about half the size of the stimulus package in the US and UK and both these countries are preparing new packages.

Given the Government’s ownership of so much of the economy much of the additional spending may just be a transfer from one quasi Government entity to another and thus result in no change in the General Government fiscal position. For instance suspending property tax will benefit the Government as the biggest landlord while paying between 25 and 75% of local (What does this even mean? Is it only citizens or citizens and PRs or does it include some foreign workers as well) workers’ wages will benefit many of the major Singaporean companies in Temasek’s portfolio, such as DBS, Capitaland and Singapore Airlines. For these reasons it is difficult to tell what the actual fiscal impact of the Resilience Budget will be. This is why we need more and better qualified Opposition MPs in Parliament to hold the Government to account.

One thing nevertheless is certain. This is that the downturn in GDP will be much more severe than the Government is pretending and could easily be 10-20% in a full year or worse. Most of the world was far too sanguine about the Covid-19 pandemic and its severity, both as a public health and an economic crisis, has been consistently underestimated. China’s deliberate attempts to cover it up and silencing of whistleblowers has greatly contributed to this. Singapore, like democratic countries such as South Korea and Taiwan, was better prepared because of its experience with SARS. But now that advantage has largely eroded as other economies mobilise their resources and move to a war footing.

Until the world develops a successful vaccine or enough people catch Covid-19 and survive, there is unlikely to be any sharp recovery in global travel. Much of the convention business, on which the Singapore tourism industry has come to rely, may be gone for good. Singapore is likely to have to keep quarantine restrictions on visitors for most of the rest of this year and possibly into next.

Also the market sell off is almost certainly not over. I warned in a previous blog that if global markets fall another 30% from here Singaporeans’ CPF may be at risk. That would mean more restrictions on withdrawals, a raising of the age you can access your CPF and/or a higher minimum sum coupled with tax increases on those of working age. Lee Hsien Loong’s determination to raise taxes suggests that we were already in that situation pre the Covid-19 sell off.

Singaporeans should not be fooled by MTI’s deliberately misleading forecasts. The downturn will be much more severe than the PM and his ministers are pretending. We need clarity on the actual fiscal impact of the Government’s support and a much more generous package for those workers laid off. When Lee Hsien Loong calls an early, reckless election, gambling with the lives of our seniors, you need to ensure that you vote in real Opposition MPs who are able and willing to hold the Government accountable. The last thing you must do is to give him and his wife an even greater blank cheque and even more years of paying themselves remuneration so large that it is a state secret!

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