Subdued global trade, investment to hamper Singapore’s economic momentum

Singapore’s economic momentum is expected to be hampered by weak global trade, growth dynamics and subdued investment. But accommodative policies would be giving support to domestic demand.

“We expect the country’s real GDP to grow by 1.8 percent in 2016 and 2.0 percent in 2017, compared with the average gain of 5.4 percent y/y recorded over the past 10 years”, said Scotiabank in a research note.

The Ministry of Trade and Industry had stated that the nation’s economy grew 2.1 percent year-on-year in the second quarter of 2016 after a similar growth in the first three months of the year. Yet the pace is expected to slow in the remainder of 2016. Consumer spending is anticipated to stay a cornerstone for the country’s economic activity. However, weaker labor market conditions and the ongoing Zika virus outbreak is expected to dampen its outlook and negatively affect tourism and confidence, according to Scotiabank.

While government spending, especially infrastructure outlays, would be underpinning the economy, private sector investment is expected to remain sluggish because of the uncertain global economic backdrop.

Meanwhile, deflationary pressures remain in Singapore. The nation’s headline consumer prices fell 0.7 percent year-on-year in July, the 21st straight month of falling prices. Core inflation, which strips the costs of accommodation and private road transport, hovered at 1 percent year-on-year in July.

“We expect the headline inflation rate to approach positive territory by the end of this year, yet inflationary pressures are set to remain weak through 2017”, noted Scotiabank.

Given Singapore’s external sector’s reliance, the nation’s exchange rate policy has a direct impact on managing inflation. After its semi-annual policy meeting in April, Singapore’s central bank loosened monetary conditions by setting the rate of appreciation of the S$NEER policy band at zero percent. Recently, the MAS noted that the current policy stance is sufficient. The central bank is unlikely to deliver additional monetary stimulus after the next policy meeting in mid-October, added Scotiabank.