I was looking at Singapore's GDP forecast by MTI and things don't look rosy at all. Many of you may have lost your job or have your pay cut and bonuses cut too. Those working in hospitality related sectors such as hotels, attractions and those doing events or in the entertainment industry will be affected the most. Singapore's unemployment numbers have not moved up much due to the many temporarily jobs created by the government. This has enabled people to continue earning some money even though their salary may not be as high as what they would have got before they were retrenched.
In times like this, if you're working in an industry which is at risk of retrenchment now, its better to prepare your emergency fund for the possibility of a retrenchment later. This will definitely help you to tide thorough when it really happens. We do not want to make the mistake of investing all our savings in the stock market and end up having to sell at a loss when we lose our jobs. I believe the worse is yet to come and companies have not felt the full impact of the crisis yet due to government supporting wages through the jobs support scheme. This is unsustainable and it will be unwise for the government to keep using taxpayers money to fund wages for the long term. We have already drawn $52 Billion from our past reserves and used a total of $92.9 Billion for all the 4 budgets combined. This is at about 20% of our GDP in 2019.
Breakdown of Singapore's GDP
If we breakdown Singapore's GDP, we will know which are the areas affected and why MTI forecasted a contraction of -7% to -4% for 2020.
A contraction in GDP means the aggregate value of the goods and services produced within the economic territory of Singapore is decreasing. This means lesser revenue for the businesses which may lead to retrenchments as companies tighten their belts to protect their bottom line.
Statistics of Singapore has a very good info-graphics as shown below showing the breakdown of GDP. 70% of Singapore's GDP comes from services producing industries such as wholesale & retail trade, finance & insurance and business services etc.
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| Adapted from: https://www.singstat.gov.sg/modules/infographics/-/media/Files/visualising_data/infographics/Economy/singapore-economy25062020.pdf |
According to MTI report here, the worst contraction in 1Q 2020 came from the accomodation & food services sector with a 23.8% year on year and 69.9% quarter on quarter contraction. Luckily, this sector only makes up 2.1% of our GDP. This sector includes hotels and also food services providers such as caterers and restaurants.
The next sector which contracted the most is the transportation and storage sector. It contracted 8.1% year on year and 29.9% quarter on quarter. This sector includes air, land and sea transportation. Air travel shrunk drastically due to the closed borders and restrictions on international visitors. Sea and land transport also contracted due to lesser demand for sea cargo handled and reduced domestic demand for public transportation.
Wholesale and retail trade also contracted by 5.8% year on year and 18.1% quarter on quarter. This sector includes motor vehicle sales, watches and jewelry and also apparel and footwear etc. Amidst all the contraction, we still see some expansion in some sectors such as manufacturing, finance & insurance and information & communication.
Which sector will have more retrenchments?
By looking at the breakdown of the GDP above, we might be able to get some hints on which sector will have more retrenchments moving forward. The accommodation and food services sector made up only 2.1% of GDP while tourism contributes about 4.2% of Singapore's GDP. If borders continue to be closed to tourists, Singapore's economy will still survive. Thus, this sector may see more retrenchments if tourists are still not allowed to come to Singapore. It is difficult for the hotels to survive if they continue to keep their staff with them.
Wholesale and retail trade may also continue to face some headwinds due to reduced domestic demand as most people work from home during the weekdays and also reduced tourism spending in areas such as Orchard road. Businesses in the CBD area will definitely be more affected as compared to shops in the heartlands.
We have not touched on the "other services industries" which also is the most affected in this COVID-19 crisis. This includes the arts, entertainment & recreation segment such as concerts, events etc. Events are still not allowed in Singapore but good news is entertainment is slowly allowed to reopen such as cinemas and attractions. For corporate events, it will definitely take some time before it is allowed again so those businesses which provide event services to corporations will surely retrench many of its staff.
It is election week for the whole of next week and we await to see the election results if Singaporeans will lean more to the government side or the opposition side. Nevertheless, life still goes on and we should always be prepared for such a crisis like this by having an emergency fund for rainy days. This is what I have always been advocating for and maybe through this crisis, the importance of financial planning will emerge out at the top again.
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