Singapore uncertainty index climbs as trade war clouds outlook

[SINGAPORE] Rising US-China trade tensions are raising alarm bells in export-reliant Singapore, with an index measuring economic uncertainty climbing to a five-month high in March.

The Economic Policy Uncertainty Index for Singapore increased to 155 last month from 126 in February, showing the tariff threats are starting to make their mark.

Yet there's still reason for calm. The index is at a relatively low level given last year's easing in policy and political uncertainty in Brazil, South Korea, France and the UK, according to Steven Davis, an economist at the University of Chicago and one of the creators of the index.

"Those developments improve the climate for investment, employment and growth," Mr Davis said in an email.

"Concerns about US trade policy and the possibility of a major trade war between the US and China cut in the opposite direction."

The pickup last month is also a far way off the 141-point jump to 283 level in November 2016 amid US President Donald Trump's surprise election victory.

The uncertainty gauges, which were created by Mr Davis, Northwestern University's Scott Baker, and Stanford University's Nick Bloom, have been replicated for economies across the world.

Given that Singapore is a small, open economy and thus very reliant on trade, the Singapore version of the index tracks combinations of words such as "uncertainty", "economy" and "regulation" in newspaper articles in 19 of the city-state's major trading partners. The gauge is trade-weighted, so the US and China have the biggest impact on the index due to their volumes of trade with Singapore.

The Baker-Bloom-Davis Index has been credited with predictive power on an economy's investment, consumption and overall growth outlook, including in a January study by the International Monetary Fund.

With trade frictions continuing to simmer, the outlook for Singapore is mixed.

"Trade policy tensions between the United States and China have worsened since the beginning of April," Mr Davis said.

"Unless these tensions subside very rapidly, it's likely that the Singaporean EPU index will rise again in April."

BLOOMBERG