Global trade war biggest risk for Singapore, say economists

Singapore

PRIVATE-SECTOR economists have flagged the threat of a global trade war as the biggest downside risk for Singapore's economy, even as they raised their 2018 growth forecast for the second consecutive time.

In the Monetary Authority of Singapore's quarterly survey of professional forecasters, out on Wednesday, trade protectionism was the top downside risk, cited by 88 per cent of respondents - up from just 40 per cent in the last survey in December.

Though United States president Donald Trump's recent tariffs will have a limited impact on Asia's trade boom, "the danger is a full-blown trade war, if Trump starts targeting China with measures which will inevitably invite retaliation", said Maybank Kim Eng economist Chua Hak Bin.

Still, economists are upbeat about 2018, raising their growth forecast to 3.2 per cent, up from December's prediction of 3.0 per cent.

This is within the Ministry of Trade and Industry's (MTI) forecast range of 1.5 per cent to 3.5 per cent, with MTI tipping growth to come in "slightly above the middle" of this.

In 2019, the economists expect growth to moderate to 2.8 per cent.

Conducted in February, the survey saw responses from 24 economists and analysts who closely monitor the Singapore economy.

The 3.2 per cent prediction is the highest full-year growth forecast since the September 2014 survey.

Explaining this optimism, Mizuho Bank economist Vishnu Varathan said: "For one, the sense is that overall global economic recovery momentum has sustained."

He cited Japan's eight consecutive quarters of growth, the broadening Eurozone pick-up and an upbeat growth outlook for the United States. "This is seen sustaining the external fillip more durably for Singapore."

Since the last survey, economists have grown more optimistic about the finance and insurance, wholesale and retail trade, and accommodation and food services sectors, as well as private consumption.

But they are more pessimistic about manufacturing and non-oil domestic exports. Expectations for construction remain unchanged.

Said Dr Chua: "Manufacturing growth will likely lose some steam, given the strong surge last year."

Services will contribute a larger share of growth, but manpower constraints will likely cap this, he added.

Though manufacturing's growth is now expected to come in lower, the sector remains "a pillar of growth", noted UOB economist Francis Tan.

Despite the fall in manufacturing expectations, the top potential upside is the electronics sector outperforming expectations, cited by 47 per cent of respondents.

Other potential upsides include the external growth outlook - cited by two in five - and property market performance. Optimism regarding the latter has risen noticeably, with 41 per cent of respondents citing it, up from 27 per cent in the last survey.

On the top downside risk of protectionism, Mr Varathan noted that the true trade risk is hard to predict or quantify at this point.

But if US tariffs on steel and aluminium spread to manufactured goods, the supply-chain effects running through China to Singapore may be amplified, he said.

Mr Tan feels, however, that too much weight has been placed on the recent Trump moves. He noted that Singapore's exports to the US are "not huge" as a share of total exports; the protectionism is mainly restricted to basic resources such as steel and aluminium, while Singapore exports mainly higher-value-added, intermediate products; and Singapore's export dependence on the US has fallen.

His only worry is that markets will "worry too much", with a sell-down potentially hurting Singapore via financial linkages and a loss of confidence.

The MAS survey found the next largest worry to be a slowdown in China's economy, with financial sector uncertainty a distant third.

In other forecasts, economists expect headline inflation of 0.4 per cent and core inflation - which excludes accommodation and private road transport - of 1.5 per cent for the first quarter of 2018.

Expectations for full-year headline and core inflation remain unchanged from the December survey, at 1 per cent and 1.6 per cent, respectively.

Also steady are labour market expectations, with respondents predicting an unemployment rate of 2.1 per cent at year-end, unchanged from the last survey.

For 2019, headline inflation is forecast at 1.5 per cent and core inflation at 1.8 per cent.