Singapore faces bigger contraction as Malaysia shuts borders

City state relies heavily on its neighbour’s workers and food. (File pic)

SINGAPORE: Malaysia’s lockdown is the latest threat to a Singapore economy already reeling from the coronavirus outbreak.

The city state relies heavily on its neighbour’s workers and food, and Malaysia’s move Monday night to ban all visitors and prevent residents from travelling overseas for about two weeks will choke off a key labour channel.

Maybank Kim Eng Research Pte estimates that about 400,000 Malaysians working and studying in Singapore cross the border on a daily basis. The potential hit to the city state’s economy could, therefore, be large.

“Banning daily commuters will essentially cut off almost a 10th of Singapore’s labour force, hurting both the manufacturing and services industries,” said Chua Hak Bin, a senior economist at Maybank in Singapore.

Singapore was already facing a recession because of virus-related disruptions to the city’s trade and tourism.

Maybank was estimating a 0.3% contraction in gross domestic product in 2020, with the potential for a more severe decline if the Malaysia shutdown takes a heavier toll on the economy.

“Malaysia and Singapore remain joined at the hip by geography and history,” Chua said.

“Malaysia’s lockdown, especially on travel and non-essential business, could have severe knock-on effects on Singapore’s economy.”

Food supplies

Singapore said Tuesday it was working with companies to find solutions to house their Malaysian staff, working with hotels, dormitories, public-housing units and private apartments to offer affordable options.

“The government is looking into providing financial support for companies that need to urgently accommodate their affected workers,” the Ministry of Manpower said in a statement.

“We will prioritise the needs of firms that provide essential services such as healthcare, security, cleaning, waste management, facilities management, logistics and transport.”

The cut-off also threatens to pummel food supplies in Singapore, which relies on Malaysia for a substantial volume of fruits and vegetables.

Singapore officials moved Monday to reassure citizens the city won’t run out of food and supplies as consumers rushed out to stack up on groceries.

“Although it’s unexpected and unprecedented, I guess we’ll just have to wait and assess given it’s only for two weeks,” and there should be sufficient inventories of food to cover that period, Selena Ling, head of research and strategy at Oversea-Chinese Banking Corp in Singapore, said in an email.

Ling said she’s forecasting a 0.9% year-on-year contraction for Singapore’s first-quarter GDP growth, “but the risk is that it drags into the second quarter as well.”

While Singapore’s officials were credited with a swift, clear, and effective response in the early stages of the outbreak, the global spread of the virus has brought a new wave of challenges to the small and open city state.

The number of infections has spiked in recent days, with new cases mainly from overseas arrivals to the country.

The latest economic data doesn’t yet show the pain of the virus outbreak.

Non-oil domestic exports expanded 3% in February from a year earlier, including a 2.5% gain in electronics shipments, according to data published Tuesday.

Port data for February showed that Singapore container throughput was humming along, if not booming, at an above-average rate compared with long-term norms.

Before the virus outbreak set in, Singapore was poised for a modest rebound following the worst growth performance in a decade in 2019.

The government last month reduced its forecasts for 2020 economic growth to a midpoint of 0.5%, from 1.5%.