Singapore may fare worse than Asean peers in the next global crash

Singapore

SOUTH-EAST ASIA is more vulnerable to a downturn than it was during the last global financial crisis, Bain & Co warned in a report out on Friday.

But Singapore's economy, historically, falls more sharply in a slump, partner Thomas Olsen told The Business Times.

South-east Asia's greater exposure to a slowing China, among other economic shifts, have left Asean more vulnerable in a downturn than during the financial crisis of 2007 to 2009.

"The region's strong economic growth does not, in fact, shelter it from harm should other parts of the world sink into a downturn or even a recession," said the Bain report.

During the last crash, Asean economies were largely sheltered by a high starting point for growth, a supportive current account position, and low leverage, the analysts noted.

But half of the region's economies have fallen into a current account deficit since 2006, on the back of an exports tumble. Also, the commodities sector will not be as able to cushion the economic blow, as prices and sales both came down; and private-sector debt is up.

On top of that, the region is now more exposed to the Chinese economy, with a five-point increase in China's share of Asean exports between 2006 and 2018. Yet Beijing's gross domestic product (GDP) growth has nearly halved in that same period, down to 6.6 per cent last year.

"The combined effect of these structural shifts will, of course, vary across countries and companies," Bain noted. Export-reliant Singapore "would be more exposed than lower-income countries that focus more on domestic markets", such as Laos.

Based on the last financial crisis, the Republic "has both more of a downturn, and a faster recovery" than its regional peers, Mr Olsen also told BT.

"You're already seeing some signs of slowdown," he said. "The fact that Singapore is a hub for financial markets - but also for regional operations and trans-shipment, and all the kinds of risks that Singapore has as an open economy - has it quite exposed."

The Republic meets some of the risk conditions flagged by Bain: The current account balance's share of the GDP shrank from 25 per cent in 2006 to 17.6 per cent in 2018, while shipments to China rose from 9.7 per cent of all exports to 12.2 per cent.

Corporate and household debt jumped from 112 per cent of the GDP to 169 per cent in the same period.

Meanwhile, annual GDP growth cooled from 8.8 per cent in 2006 to 3.2 per cent last year, with the Ministry of Trade and Industry cutting its outlook for this year to between zero and 1 per cent just last month.

Mr Olsen said that he has seen preparations for the looming downturn already under way, with firms looking to renew credit facilities, raise capital or invest in raising productivity.

But the Bain report also cautioned that the timing of the downturn "is, of course, unknowable" - an uncertainty that Mr Olsen deemed the biggest challenge for policymakers and firms, as excessive conservatism could curtail growth opportunities.

Separately, Oxford Economics projected on Thursday that economic growth in South-east Asia will ease to 4.5 per cent in both 2019 and 2020, down from 5.1 per cent last year.