Singapore Economy under Technical Recession due to Trade War
Despite the growing fears of technical recession in the Singapore economy, the Monetary Authority of Singapore (MAS) is likely to ease its monetary policy this month.
In order to reduce the appreciation of the city-state’s currency against other currencies, the Singapore dollar nominal effective exchange rate (S$NEER) policy will be cut down by MAS.
After detailed analysis of the Maybank economist, Lee Ju Ye said that a slight cut down of S$EENR at around 0.5 percent is expected as economists believe the current slope is somewhere around 1 percent.
The heads of the Central Bank of Singapore will come together for a semi-annual conference this month to discuss ways by which the financial sector can help in relaxing the Singapore economy.
As per the analysts, the pass from Fed cuts to Singapore dollar (SGD) rates has been shut with the ongoing US dollar strength and the tight SGD liquidity. They said, “Short-term SGD rates are still somewhat elevated”.
The global slowdown has had significant impacts on the domestic sector of the city and direct implications on the labour market. The US-China trade war and slowing global demand has led to plunge of PMI (purchasing managers’ index) for main markets and Singapore.
Due to weak consumer sentiments and a falling property market, consumers are not really optimistic and the overall loan growth is slipping mainly due to a decline in consumer and housing loans.
If the analysis of HSBC Global is believed, Singapore will “narrowly escape” technical recession in 2019 because of the expected expansion of the services sector in the third quarter.
In a recently released note HSBC said, “We believe growth in the services sector will bounce back in Q3, which should allow the Singapore economy to narrowly escape technical recession this year. However, given the ongoing weakness in externally-driven sectors, MAS is likely to ease monetary policy in the October meeting.”
However, sources reveal that by the end of 2019, the employment conditions will prove to be more challenging, majorly for the manufacturing and services sector. The RHB bank of Malaysia said that the net negative employment addition is recorded in manufacturing in Q2 whereas the employment addition in the service sector is sharply moderate.
Even when government officials like Indranee Rajah, the Second Minister for Finance and Education, are positive about the Singapore economy, many business owners and senior executives are dejected seeing the economy nearing a technical recession.
The deterioration in the inflationary pressures of the city has eased the need for MAS to ease its policy.
Economists claim that even the recent drone attacks on Saudi Arabia will not lead to any inflationary risks.
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