Singapore economy may feel negative impact from US-China trade war: MAS

Even though trade frictions have had a “limited impact” on Singapore so far, it may no longer be the case, the central bank said in its bi-annual Macroeconomic Review.

Singapore skyline

Economic uncertainties have increased since six months ago, and the negative spillover created by trade friction among countries are likely to have a more obvious impact from the later part of this year going forward, says Singapore’s central bank.

Even though trade frictions have had a “limited impact” on Singapore so far, it may no longer be the case, the Monetary Authority of Singapore said in its bi-annual Macroeconomic Review on Friday.

“The economic outlook has become more uncertain since the last review. In particular, United States (US) trade frictions with China have risen in scale and intensity over the past six months. With the imposition of the first round of tariffs in July 2018 by both US and China, some risks have begun to materialise,” the MAS noted.

The world’s two largest economies have been slapping tariffs on each other in an ongoing trade fight, with the US imposing about US$250 billion of duties on Chinese goods and China retaliating with US$110 billion on US products.

Singapore's GDP growth

The impact of trade frictions on global trade and production, as well as the region’s export and Gross Domestic Product (GDP) growth, is likely to become more evident in the second half of the year, MAS said.

“Trade frictions between some major economies and the resulting uncertainty could weigh more discernibly on economic activity, although some of this could be mitigated by the diversion of trade flows and production to Southeast Asia,” it added.

The waning IT cycle and moderating trade-related industries will contribute to a slower but “firm” pace of expansion for the Singapore economy for the rest of this year and for 2019, the central bank said. Growth in modern services is expected to remain firm, benefiting segments such as IT & information and consulting services, as well as the financial sector.

GDP is expected to come in at the upper half of the 2.5-3.5% forecast range for 2018, before moderating slightly next year.

Singapore’s GDP was up 4.1% for the second quarter and 2.6% for the third quarter this year, on a year-on-year basis.

Global GDP growth

Global growth predictions for 2019 lower than this year

Growing trade frictions between the US and China, as well as a concurrent tightening of global financial conditions, could increasingly weigh down on economic activity for other economies.

Further hikes in US interest rates and the Federal Reserve’s gradual unwinding of its balance sheet could also lead to a tightening of dollar liquidity, posing debt rollover risks for some borrowers in emerging markets.

The central bank has projected global growth for next year to expand by 4.2%, slower that this year’s 4.4% increase.

For the G3 economies – US, Japan, Eurozone – GDP is expected to grow by 2.0% for next year, compared to 2.2% for this year. China is predicted to grow by 6.6% for this year, before slowing down to 6.3% for next year.

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