The size of Singapore’s expansionary fiscal budget in 2020 exceeded expectations with a deficit amounting to S$10.95 billion or 2.1% of GDP – one of the biggest seen in two decades.
With the COVID-19 outbreak taking an economic toll against a backdrop of significant external uncertainties including US-centric trade and technology policies, we see the Singapore government’s fiscal action to be broadly warranted.
The Singapore budget features a series of aggressive stimulus packages totaling about S$6.4 billion, which include:
We expect the expansionary Singapore budget to be a supportive factor for the domestic equity market, and likely helped offset what would have been a larger decline for the STI index yesterday against the larger background of risk aversion in markets and a stronger US dollar against Asian currencies as bellwethers Apple and HSBC downgraded their corporate outlooks.
We believe Singapore’s relief measures such as corporate tax rebates and job support schemes further insure against the risks of longer-term harm on the domestic labor market and corporate margins due to the COVID-19 outbreak.
Property tax rebates, loan programs, a delay in the goods and services tax (GST) hike and other relief measures also bring much needed support to the retail, hospitality, tourism, aviation and S-REITs sectors, especially landlords in the retail and hospitality S-REITs sub-sectors, which have suffered significant pressure from the COVID-19 outbreak.
For the retail sector, we expect some savings from property tax rebates to be passed on from landlords to tenants, especially considering the explicit encouragement from policy makers and increasing calls from the Singapore Retailers Association for rental concessions. A delay of the planned hike in the GST until after 2021 also helps to boost confidence that any potential impact on consumption spending is not a near-term concern for retailers.
For the hospitality and tourism sectors, a property tax rebate of 30 per cent will be granted for the accommodation and function room components of licensed hotels and serviced apartments, as well as prescribed MICE venues. In addition, a temporary bridging loan program will be introduced for a year to help businesses in the tourism sector with their operating costs and cash flow. These measures would provide timely support after a sharp fall in visitor arrivals to Singapore and a significant drop in average occupancy rate to 50-60%.
Our S-REITs analyst Andy Wong sees hospitality and retail S-REITs to be beneficiaries of the budget.
The budget also includes measures to mitigate cost pressures and protect jobs in the aviation sector. These comprise rebates on aircraft landing and parking charges, assistance to ground handling agents. In addition, rental rebates for shops and cargo agents at Changi Airport will be implemented for a period of 6 months. All Singapore carriers operating scheduled flights will also potentially save an estimated S$6 million on annual regulatory fees. Similar to measures implemented during the SARS outbreak, our equity analyst Chu Peng believes this will benefit companies whose outlook have been impacted by weaker travel demand due to the outbreak.
In terms of impact of currency impact, our FX strategist Sim Moh Siong believes it is encouraging that the authorities have leveraged on their considerable fiscal space to cushion the economic blow of outbreak, given the limits to how much an easier SGD policy can alleviate the economic shock of the coronavirus. (see here) Significant fiscal support should reduce the need for more aggressive easing from the Monetary Authority of Singapore (MAS). With a shift to a flat S$NEER policy slope mostly priced in, we continue to see little value in aggressively chasing after a higher USDSGD.Disclaimer applicable to recommendation
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Version: December 2019