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FIRST, the bad news. If you believe that the stock market is an effective predictor of gross domestic product (GDP), then the Straits Times Index's 8 per cent fall so far this year foretells more pain is coming.
Now, the good news. The impact of the limping stock market on the real economy is nada, according to market watchers.
Analysts who have plotted Singapore's GDP growth rates over the years against the STI or the index's total returns have discovered that there is no discernible link between them.
Motley Fool, an investor education portal, is one of them. Last year, in a posting, its analyst concluded that there was no "observable relationship" between GDP growth rates and stock market returns. "In other words, what the stock market will do over the short-term has nothing much to do with our country's economic growth," it said.
There appears to be broad consensus on the issue.
"There is no reason why the movement of the STI per se should drive the overall economy," said Manu Bhaskaran, chief executive of Centennial Asia Advisors.
Sharp dips in equities may dent overall sentiment but in terms of the more tangible wealth-destruction impact, it may leave only a light touch given the low proportion of Singaporeans invested in the stock market; based on 2012 data, only 10 per cent of total assets in Singapore households were in shares and securities.
"Property has a huge share of households' total wealth, not equities. So it is difficult to argue that wealth destruction from equity corrections is all that substantial a factor," added Mr Bhaskaran.
Nevertheless, in a protracted downturn, there are vulnerable spots. "Should there be margin calls that tap into individuals' cash reserves, it could hurt discretionary spending," said OCBC Bank head of treasury research and strategy Selena Ling.
It's the same case in China where stocks have suffered major tumult this year, sending global markets on a tailspin. Yet, most market professionals don't think much of its impact on the wider Chinese economy.
For one thing, less than 10 per cent of households are exposed to equities there too. "One way of looking at this is that from June 2014 to the following year, the China A Share market rallied by over 100 per cent, but this did not result in an economic surge," said Allianz Global Investors senior portfolio manager Christina Chung.
That's not to say the links are altogether disparate. Stock prices in the local bourse have tumbled amid bearish global markets, much of it fuelled by pessimism over macro conditions in China, its impact on the rest of the world, a commodity slump and rising US interest rates.
"The turmoil in Singapore's stock market reflects the widespread pessimism in global equity markets.
"This could prove worrying for businesses as the situation will result in a tightening of financial conditions - owners of capital will be less willing to lend; consequentially companies and consumers will be less willing to spend and invest," said Singapore Business Federation (SBF) chief executive Ho Meng Kit.
The credit crunch has somewhat begun, particularly for businesses that are reliant on trade financing for working capital, according to Harsha Basnayake, EY Asean managing partner for Transaction Advisory Services. "This is surprising but jittery lenders are exiting certain sectors in some markets. There are subtle signs of this in Singapore, Malaysia and Indonesia," he added.
For that reason, he expects an uptick in restructuring activity among firms facing operational and financial woes down the road - beyond six to 12 months. "Singapore is a market that's getting ready for restructuring (among corporates) based on the conversations that businesses are having with creditors now. (But) It's still early stage," he said.
These do not merely involve firms hit by plunging oil prices but also those with foreign-denominated debt and are manufacturing and imports reliant, all of which are facing margin pressures.
The sense of caution may be rising but for now, Song Seng Wun, an economist at CIMB Private Banking in Singapore, says while the macro indicators point to slower growth, fears that a recession looms, as evinced by the wild swings of the STI this year, may be overdone. He nevertheless, cautions: "Obviously, this can change. If there is no financial market stability, it could feed into the real economy. But I don't see any of that now."
In some ways, that belies Mr Basnayake's own take of the events that could unfold: "My guess is that we'll have a hard run till end of this year. Then in 2017, it's going to be tough."