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.
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