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Singapore Remains Dire as Global COVID-19 Resurgence Looms

The economy of Singapore is still in a ‘dire’ situation because of the COVID-19 outbreak. According to the country’s central bank, its unemployment numbers and corporate bankruptcies might increase in the following months.

After narrowing by 41.2% in the second quarter compared with the last quarter, based on the advance estimates released this week by the Ministry of Trade and Industry, the Southeast Asian economy dived into a technical recession.

The official forecast is that the economy will contract from 4% to 7% this year. This would be the most extreme downturn since the country’s independence in 1965.

Moreover, they define the technical recession as two straight quarter-on-quarter contractions in the gross domestic product – the broad measure of the value of goods and services generated in an economy.

The Monetary Authority of Singapore is the country’s financial regulator and central bank. Its Managing director, Ravi Menon, said that they are not at the start of the end. Instead, they are at the end of the beginning.

He noted, “The recovery is likely to be slow and uneven, weighed down by renewed outbreaks of infection here or abroad.”

Menon also added that they would go into 2021 with higher levels of debt. This is in both the corporate and household sectors. This will then act as a further hindrance to growth and might become a source of vulnerability.

Financial System and the Economy

Singapore’s financial system stays robust and resilient in withstanding economic weakness, generally. Menon mentioned that the authority’s stress test revealed that major banks and insurers, even those who are under ‘very adverse’ situations, have enough buffers to weather the uncertainties.

The country is a major financial center and is home to a lot of global banks and insurance companies.

In a media conference, the MAS reported a net profit of 10.6 billion Singaporean dollars or $7.63 billion in the financial year ending on March 31. They will then return half of said profits, about 5.3 billion Singaporean dollars or $3.81 billion, to the government. The remaining money, they will put in the MAS’ reserves.

Amid the coronavirus pandemic, Singapore has been one of the hardest-hit Southeast Asian countries. Last Wednesday, the city-state showed over 446,800 cases and 27 deaths, based on the Ministry of Health.

Furthermore, the government looked into its reserves to fund four fiscal stimulus packages. This was worth nearly 100 billion Singaporean dollars or $71.8 billion, about 20% of the overall gross domestic product.

Exchange Rates

Menon stated that the central bank would do its best to keep the exchange rate stable to give an anchor to confidence.

Instead of the interest rate, Singapore uses the exchange rate as its main monetary policy tool. Previously, the MAS eased policy by setting its exchange rate band. This measures the Singaporean dollar against a basket of major currencies on a zero-appreciation path. It then changes the midpoint of the band.

Menon explained that “The aim of Monetary policy during this crisis is to prevent a broadening of disinflationary pressures that would be destabilizing for the economy.”

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