Open economies likely to suffer from protectionist stance

Singapore

THE ripple effect of real estate mogul Donald Trump's win in the United States' presidential election is expected to spread far and wide, with Asia and Singapore likely to feel considerable impact.

This was a key point raised at the 26th Singapore Economic Roundtable on Wednesday, where participants shared their views on recent economic developments, as well as Singapore's macro-economic outlook and the implications.

Selena Ling, head of treasury research and strategy at OCBC Bank noted that global monetary policy is largely still intact, but this week's developments in the political policy nexus is worrying.

Mr Trump, the America's 45th president, has threatened to rip up major trade agreements such as the North American Free Trade Agreement (Nafta), sink the Trans-Pacific Partnership (TPP) agreement, and impose barriers in the US on imports from countries such as Mexico and China.

Singapore is currently one of 12 countries involved in TPP, a free trade agreement which covers 40 per cent of the world economy.

OCBC Research, in a report on Thursday, said that with TPP, Singapore will be able to enjoy lower tariff and non-tariff barriers for both goods and services. It noted that Singapore has close trade ties with the US, given that the nation-state's exports and imports as a total of trade is 6.3 per cent and 11.2 per cent, respectively.

"This is really bad for small, open economies like Singapore. So you have a lot of concerns from what the fallout of Brexit could be and the fact that now TPP looks like it's going to be a complete washout even before it starts doesn't bode well for Singapore. These are the realities that Asia and export-dependent economies like Singapore have to live with," Ms Ling said at the session.

Meanwhile, a Credit Suisse report noted that in the near-term, Hong Kong, Singapore and Vietnam look most vulnerable, while India and Indonesia should be more resilient.

Juxtaposed against the protectionist trade policies is the distinct possibility of higher US interest rates, starting with a December Federal Reserve rate hike.

Credit Suisse reckons higher US interest rates and a more hostile trade policy would likely impact Asia in the second half of 2017.

"China and Korea are particularly at risk of facing trade protectionist measures given that they are considered major trade partners with the US and are running a very large trade surplus against the US. Hong Kong and Singapore economies are once again most exposed to higher US rates," it said.

Domestic investment in Singapore, Hong Kong, and Vietnam and Malaysia could also be hit by weaker foreign direct investments, Credit Suisse said.

Moving forward, global growth is expected to remain lacklustre in 2017, a reflection on the rise in economic uncertainty particularly in the Eurozone, as well as downbeat investor expectations.

Consumption spending will continue to be the main support for growth in the US and the Eurozone, while in Japan, economic activity should receive a mild boost from fiscal easing in 2017.

Back home, given the subdued external demand, participants were told gross domestic product (GDP) growth is projected to come in at the lower end of the 1-2 per cent forecast range in 2016 and only slightly higher in 2017.

Labour demand here is expected to weaken further in the next few quarters given the extended period of sub-par GDP growth and consolidation in some sectors.

As independent economist Glenn Maguire noted, Singapore is a highly open economy in a world where the link between global income growth and global merchandise goods trade growth appears to be structurally broken.

"I think part of the medium-term policy-agenda is, and we all need to participate in this, the development and communication of a more cohesive and accessible narrative on the benefits of free trade, globalisation, the TPP, reskilling, retooling and basically everything that's important to the long-term growth potential of economies like Singapore," he said.

But wage pressures are likely to ease in the second half of 2016 and for the whole year, it will settle on a comparable level to 2015, participants were told at the event organised by the Lee Kuan Yew School of Public Policy, Institute of Policy Studies and The Business Times. Other bright spots would be that technology and innovation will likely be key growth drivers for Singapore going forward, according to speakers.

READ MORE: