Analysts opine Johor would likely underperform other states in terms of economic recovery due to heavier reliance on Singapore
by NUR HANANI AZMAN/ pic by BERNAMA
TOUGHER times are expected in Johor, particularly for Johor Baru, as Singapore’s economy plunged into recession following the contraction of the republic’s GDP by 13.2% on a year-on-year (YoY) basis in the second quarter this year (2Q20).
MIDF Amanah Investment Bank Bhd (MIDF Research) economist Abdul Muiizz Morhalim said the southern state, being close to Singapore, is expected to suffer a drastic spillover effect from the slowdown in the city-state’s economy — also a result of the eight-week circuit-breaker measures that were initiated from April 7 to slow the spread of Covid-19.
He said the reduced number of tourists from Singapore has greatly decreased transactions and spending in Malaysia, which is reflected in dismal sales at Johor’s retail outlets including supermarkets, restaurants and shopping malls.
“Apart from the retail sector, Johor’s property sector may see reduced foreign purchases by the Singaporeans,” he told The Malaysian Reserve (TMR) in an email reply.
Following the cross-border travel ban, the number of tourist arrivals from Singapore fell sharply by 66.1% YoY to 309,476 in 2Q20. In contrast, a total of 1.02 million tourists from Singapore visited Malaysia in 2Q19.
According to Abdul Muiizz, more than 45,000 Malaysians are also reportedly stranded in Singapore and unable to return to Malaysia following the republic’s lockdown.
He said the measures have also stopped movement of workers between Malaysia and Singapore, and a prolonged travel ban will put workers at risk of losing their jobs for good.
However, the decision to gradually reopen the border between Malaysia and Singapore will allow Malaysians who live in Johor to return to work in Singapore.
Maybank Kim Eng senior economist Dr Chua Hak Bin said the strict border controls have crippled Johor’s economy with the average 300,000 people that crossed the causeway daily collapsing to a trickle.
“Even with the reopening of the border on Aug 17 when the Reciprocal Green Lane (RGL) and Periodic Commuting Arrangement (PCA) travel begins, the numbers crossing the causeway will remain very small.
“Only 400 will cross a week under RGL and 2,000 a day under PCA,” he told TMR in an email reply.
Last Friday, Bernama reported applications for cross-border travel between Malaysia and Singapore under the RGL and PCA schemes beginning Aug 17 had reached the maximum quota for the first three days.
Johor Immigration Department director Baharuddin Tahir said the department received 180 RGL and 6,000 PCA applications for the first three days since Aug 10.
Chua concurred with Abdul Muiizz and said Johor would likely underperform other states in terms of economic recovery due to its heavier reliance on Singapore for jobs, shopping and investments.
“We are forecasting a U-shaped sluggish and choppy recovery for Singapore, given the slow reopening, border controls, social distance rules and foreign worker shortages.”
Abdul Muiizz said the slowdown in Singapore also has a negative impact on Malaysia’s overall exports and tourism industry.
“As a result of reduced demand from Singapore, Malaysia’s exports to Singapore dropped by 11.8% YoY in 2Q20 from a strong growth of 10.7% YoY in 1Q20.”
In general, MIDF Research projected a recovery in Singapore’s economy would come in the latter part of the year at a more gradual pace, with constraints expected due to the resurgence of Covid-19 cases.
Based on recent data, there are signs of improving economic activities after the republic’s government lifted the coronavirus lockdown and reopened the economy.
“Singapore’s retail sales and industrial production started to pick up in June 2020, although the level of consumer and business activities remained below the pre-pandemic level.
“Furthermore, as a trading nation, Singapore’s economic outlook will depend on the strength of recovery in external demand,” Abdul Muiizz said.
In June 2020, Singapore’s non-oil exports jumped strongly by 16.1% YoY, rebounding from the 4.6% YoY decline in May 2020.
Abdul Muiizz said despite the rebound, the recent escalation in US-China geopolitical tension and the continued rise in Covid-19 cases globally remain as key downside risks to Singapore’s export outlook.
Institute for Democracy and Economic Affairs senior economist Adli Amirullah said theoretically, Johor’s economy will be impacted the most when there is an absence of Singaporean consumers.
He explained that the retail sector in the state will feel the pinch first, before it trickles down into job losses, especially if domestic demand could not meet the existing supply.
As for the property sector, Adli said it would depend on the number of loan defaulters among Singaporeans.
“If the loan default is too high, it may affect the property market very badly. I am expecting there will be less exports going into Singapore and the number should be reflected in the next quarter.
“It is difficult to say whether the effect will be significant because it will also depend on our domestic economy,” he told TMR.
Adli said Singapore’s economy could recover in between one and three years, depending on the adaptability of the industries to the new normal.
“As long as the vaccine for Covid-19 is not finalised, these industries need to ‘co-exist’ with the virus and implement the suggested standard operating procedures (SOPs) for their daily business activity.
“We need to admit that it will not be easy and businesses may incur more costs just to comply with the SOPs, but it is something that needs to be done to ensure the safety and health of the people.”
OCBC bank chief economist Selena Ling said both Malaysia and Singapore are not immune to the pandemic just like the rest of the world.
“Given the close proximity, economic linkages and connectedness of the two economies, it would not be surprising the weak consumer sentiments and retail spending have been impacted and may stay soft in the coming months as cross-border travel has not normalised.
“The Singapore economy is still likely to contract in the second half of this year, but the decline should be milder with the reopening of the economy,” she told TMR.
Ling said the total unemployment rate in Singapore had already climbed to 2.9% in 2Q20 with total employment falling by a whopping 131,500 — nearly double the 69,800 addition seen for the whole of 2019 — hence the risk of more retrenchments and wage cuts.
“While China will be first-in-first-out from the Covid-19 pandemic, the recent 2Q20 GDP prints from Asia generally suggest a deeper recession and warranting more policy support in the near term.”
Resorts World Sentosa (RWS), one of Singapore’s biggest private-sector employers, on July 15 reported laying off staff as part of cost-cutting measures in the wake of the pandemic.
According to the Singapore’s Ministry of Manpower, the majority of workers laid off by RWS were foreigners, leading to an increase in the share of local workers in RWS from 66% to 75%.