Sin­ga­pore’s econ­omy could suf­fer from the Us-china row

Some also flagged po­ten­tial damp­en­ing ef­fects on in­vest­ments and busi­ness sen­ti­ment as early as the sec­ond quar­ter of 2018.

Singapore Business Review - - CONTENTS -

When the U.S. and China threat­ened to im­pose tar­iffs on each other’s goods worth bil­lions of dol­lars, Sin­ga­porean Prime Min­is­ter Lee Hsien Loong pub­lished an ed­i­to­rial in mid-april warn­ing that a trade war be­tween the two eco­nomic pow­er­houses would slow down the global econ­omy and hurt most coun­tries, in­clud­ing Sin­ga­pore. “We are a small, open econ­omy with trade flows more than three times our GDP. A trade war be­tween the two largest economies in the world will have a big, neg­a­tive im­pact on Sin­ga­pore,” said Lee. Whilst a full-blown trade war is not likely in the cards amidst ex­pec­ta­tions of a U.s.-china deal be­ing reached, an­a­lysts echoed the prime min­is­ter’s con­cern that the coun­try is es­pe­cially vul­ner­a­ble to any es­ca­lated trade war. Some also flagged po­ten­tial damp­en­ing ef­fects on in­vest­ments and busi­ness sen­ti­ment as early as the sec­ond quar­ter of 2018.

Chua Hak Bin, se­nior econ­o­mist at May­bank Kim Eng Re­search, noted that the GDP growth at 4.3% in the first quar­ter of 2018,could be a good sign. “There is, how­ever, some risk that the on­go­ing U.s.-china trade ten­sions will im­pact in­vest­ments and busi­ness sen­ti­ment in the sec­ond quar­ter.”

Growth in goods ex­port vol­umes did slow to an an­nual 1.9% in the first quar­ter of 2018, the weak­est an­nual rate in more than a year, but base ef­fects have ex­ag­ger­ated the slow­down in re­cent trade data, reck­oned Sian Fen­ner, eco­nomic ad­vi­sor at ICAEW and lead Asia econ­o­mist at Ox­ford Eco­nomics.

“Ex­ports should still be sup­port­ive of GDP growth, in the ab­sence of any es­ca­la­tion in U.s.-china trade fric­tions,” said Fen­ner, plac­ing the like­li­hood of a full-blown trade war at 12%. If this low-prob­a­bil­ity sce­nario were to hap­pen, she flagged “sig­nif­i­cant” knock-on ef­fects for Sin­ga­pore. “one bad case sce­nario we have ex­plored as­sumes that the U.S. pulls out of NAFTA and im­poses blan­ket trade tar­iffs on China,

South Korea, and Tai­wan, who then re­tal­i­ate with re­cip­ro­cal tar­iffs on

U.S. im­ports,” said Fen­ner. “This would hit world trade and global fi­nan­cial mar­kets, ad­versely af­fect­ing Sin­ga­pore’s do­mes­tic man­u­fac­tur­ing sec­tors and ex­port-de­pen­dent ser­vices such as trans­port and stor­age.” She es­ti­mated the Sin­ga­pore econ­omy would slow to 2.5% in 2018, ver­sus a base case of 3.1%, and GDP growth to slip to only 1.6% in 2019.

Some de­cel­er­a­tion in ex­ports has been ob­served in the re­gion, but this was likely driven more by a slightly softer de­mand in Europe and the high base ef­fect from 2017, dur­ing which ex­ports grew very fast, rather the damp­en­ing im­pact of trade ten­sions, said Ali­cia Garcia Her­rero, chief econ­o­mist, Asia Pa­cific at Natixis. still, Her­rero warned that any ma­te­rial im­pact on global trade growth will di­rectly hurt Sin­ga­pore not just via sup­ply chain link­ages with China, but also its ex­port ac­tiv­ity, with sec­tors such as ma­chin­ery trans­port, petroleum, and trade-linked ser­vices poised to be the most af­fected.

For Se­lena Ling, head of trea­sury re­search & strat­egy at OCBC Bank, it re­mains de­bat­able whether other emerg­ing or Asian economies ben­e­fit or lose out from the U.s.-china trade dis­pute since any boon from China di­vert­ing some de­mand from U.S im­ports to other sup­pli­ers may be par­tially negated by the de­risk­ing in as­set mar­kets and for­eign cur­rency swings.

A trade war be­tween the two largest economies in the world will have a big, neg­a­tive im­pact on Sin­ga­pore.

Sin­ga­pore econ­omy would slow to 2.5% in 2018

Newspapers in English

Newspapers from Singapore

© PressReader. All rights reserved.