Sin­ga­pore could be the first ca­su­alty of a loom­ing global trade war

Singapore Business Review - - CONTENTS -

In March. US Pres­i­dent Don­ald Trump is­sued hefty tar­iffs of 25% on steel and

10% alu­minium im­ports that raised the pos­si­bil­ity of a trade war should other coun­tries raise their own rates in re­tal­i­a­tion. As a heav­ily ex­port-de­pen­dent econ­omy, Sin­ga­pore stands to lose as much as $22b in the case of a full-blown trade war which could smash fi­nan­cial mar­kets and hit do­mes­tic man­u­fac­tur­ing sec­tors in the citys­tate, ac­cord­ing to an­a­lysts.

“Trade war could trig­ger the risk of a re­ces­sion. Risk as­sets will likely to be de­pressed for an ex­tended pe­riod, un­til a cease­fire is reached, and typ­i­cally when the eco­nomic losses are sig­nif­i­cant for all par­ties in­volved,” Bank of Sin­ga­pore se­nior in­vest­ment strate­gist James Cheo said in a re­port.

The city’s promis­ing growth prospects are also marred by the pos­si­bil­ity of a global trade war, which was re­vealed by the Mone­tary Author­ity of Sin­ga­pore (MAS) in its sur­vey of pro­fes­sional fore­cast­ers.

“The pos­si­bil­ity of a global trade war sce­nario present sig­nif­i­cant con­cerns for a large pro­por­tion, or 88%, of re­spon­dents. This is more than dou­ble that in the De­cem­ber sur­vey,” MAS noted.

How­ever, such a mas­sive loss would only oc­cur in the worst case sce­nario, said

Sian Fen­ner, lead econ­o­mist at Ox­ford Eco­nom­ics. In an in­ter­view with Sin­ga­pore Busi­ness Re­view, she noted that this would only oc­cur if the Western su­per­power de­faults on its trade obli­ga­tions and pulls out of the North Amer­i­can Free Trade Agree­ment and im­poses blan­ket trade tar­iffs on China, South Korea and Tai­wan, prompt­ing the coun­tries to re­tal­i­ate.

“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,” said Fen­ner.

Worst case sce­nario

This could lead to as much as $22b loss in end-2019 GDP to the ex­tent that the the cen­tral bank would have to in­ter­vene to avoid sub­se­quent mar­ket shocks. “In the event that this worse sce­nario played out the MAS could loosen mone­tary pol­icy by adopt­ing a de­pre­ci­a­tion bias or at the very least main­tain its cur­rent zero ap­pre­ci­a­tion bias in SG$NEER into 2020,” she added

Against this bleak out­look, eco­nomic growth will in­evitably slow down to 1.8% in 2019 from 3.6% in 2017 be­cause even if tar­iffs are not im­posed di­rectly on Sin­ga­pore, ex­ports would still reel from lower Chi­nese and re­gional trade.

“Be­ing a small, open, and trade de­pen­dent econ­omy, Sin­ga­pore will likely be neg­a­tively af­fected should a trade war erupt. This could weigh on ex­ports, with ex­ports ac­count­ing for a sig­nif­i­cant part of the econ­omy of 173% of GDP in 2017,” Chia Shuhui, se­nior an­a­lyst at BMI Re­search.

Ali­cia Gar­cia Her­rero, chief econ­o­mist at Natixis echoes this sen­ti­ment, “Al­though the di­rected im­pact on Sin­ga­pore maybe more muted thanks to FTA, the re­al­ity is that Sin­ga­pore is re­ally an en­tre­pot so it is af­fected by re­duc­tion in de­mand for goods of neigh­bour­ing coun­tries. In ad­di­tion, the war that the US is con­duct­ing is not only a trade war but also an in­vest­ment word (Broad­com has be­come one of the first vic­tims) as well as cur­rency war, talk­ing down the USD.” How­ever, Fen­ner noted that the like­li­hood of such an ex­treme sce­nario re­mains low, es­ti­mat­ing the prob­a­bil­ity of a full-blown trade war at only 12%.

Sin­ga­pore stands to lose as much as $22b in the case of a full-blown trade war

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