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China-US trade war biggest wildcard for Singapore economy

Latest MAS survey of economists trims 2019 growth to 2.5%; they see muted Brexit impact

Private-sector economists cited the US-China trade war as the biggest wildcard that could impact Singapore's economy, but they caution that this could swing either way.


PRIVATE-SECTOR economists cited the US-China trade war as the biggest wildcard that could impact Singapore's economy, but they caution that this could swing either way.

Flagged as both the number one upside and downside risk, an easing of trade tensions could result in stronger-than-expected growth while continued trade protectionism could pose a further drag to the economy, according to the Monetary Authority of Singapore's (MAS) quarterly survey of professional forecasters released on Wednesday. "Geopolitical risks are the top things to watch out for, such as Donald Trump and Kim Jong Un's on-and-off again relationship, and how India and Pakistan almost came to war," said CIMB Bank economist Song Seng Wun.

"These are still hidden below the surface but could all come to a head."

But he shrugged off the impact of the recent Brexit developments on Singapore."Brexit is not going to severely or significantly affect the Singapore economy," he said.

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This is unlike the US-China trade war, which has far greater effects as it involves the world's two largest economies that are heavily plugged into global supply chains, he added.

Maybank Kim Eng economist Lee Ju Ye concurred: "The exposure for Singapore is much smaller compared to our exposure to China."

"Only if it affects the overall European economy or triggers a financial crisis in Europe would Brexit become a concern here."

In the March survey, other key risks for the Singapore economy include China's growth trajectory, and monetary policy in developed economies.

On the back of the risk factors still up in the air, economists have lowered Singapore's growth forecast for 2019 for the third consecutive quarter, easing slightly from an earlier prediction of 2.6 per cent in December.

They expect growth to come in at 2.5 per cent this year, which falls within the Ministry of Trade and Industry's (MTI) forecast for growth ranging from 1.5 per cent to 3.5 per cent, with MTI tipping growth to come in "slightly below the mid-point" of this range.

A total of 23 private sector economists responded to the survey conducted in February 2019.

Since the previous survey in December, economists' expectations declined further for a number of sectors, including manufacturing, finance & insurance, wholesale & retail trade, and accommodation & food services. Construction was the only sector which saw a surge in positive sentiment, with the growth estimate rising from 1.5 per cent in December to 2.1 per cent in the latest survey.

Lowered forecasts are likely a result of the weak economic data unveiled so far, such as non-oil domestic exports and industrial production numbers, said economists.

This comes as no surprise, following recent cuts to global growth projections by various organisations such as the International Monetary Fund and the Organisation for Economic Co-operation and Development (OECD).

Ms Lee said: "As data continues to come out, we see that Singapore is not the only one affected - all the other countries in the region are also feeling the impact of the trade war."

She added that there could "still be room for further downgrades", especially in the manufacturing and trade-related sectors if the uncertainty persists.

"Singapore's outlook really hinges on the US-China trade deal, which could help boost the numbers in the second half of the year," she said.

Economists also noted that headline inflation and core inflation expectations both dipped in the latest survey. They are forecasted to come in at 1.1 per cent and 1.7 per cent respectively, down from 1.3 per cent and 1.8 per cent in the December 2018 survey.

Given the muted numbers and the downbeat growth outlook, Ms Lee projects that the MAS will likely stand pat in its upcoming April policy meeting.

A separate report by HSBC on Wednesday also forecasted that the central bank will likely keep the slope of the Singdollar nominal effective exchange rate unchanged at 1 per cent next month.

"Given the relatively broad-based deterioration in the growth outlook - contrary to our earlier expectations for domestic variables to hold up better compared to exports - our base case is now for the MAS to keep policy unchanged in April," wrote HSBC economist Joseph Incalcaterra.

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