Singapore’s economy would slow this year, reflecting a weakening in key trading partners and a further cooling of the electronics sector, the Monetary Authority of Singapore (MAS) said.
The city-state is forecast to expand slightly below the midpoint of a 1.5 percent to 3.5 percent forecast range for this year after growing 3.2 percent last year, the central bank said in its Macroeconomic Review published yesterday.
The expansion should come in slightly below Singapore’s potential growth after two years of outpacing that yardstick, the report said.
“Global growth eased considerably in Q4 2018 as a deceleration in China rippled out to other economies via weaker trade flows, exacerbated by trade tensions,” said the report, which is released twice a year and contextualizes MAS policy decisions. “This has carried over into 2019.”
Inflation should also step down this year, due to domestic electricity market liberalization, more subdued oil prices and generally benign external price pressures, the report said.
MAS’ core inflation gauge is set to slide to the middle of a revised 1 to 2 percent range.
The more subdued forecasts reflect a global outlook that has soured since the end of last year.
The central bank sees slower domestic growth heavily influenced by weakening in its key trading partners, with final demand impact from China, the ASEAN-5 economies, the eurozone and the US accounting for about 30 percent of Singapore’s GDP.
While the impact of the slowdown in China — Singapore’s biggest trading partner — would weigh heavily, a downturn in the tech cycle would also drag on the city-state, it said.
After the electronics industry bolstered overall trade over the previous two years, global chip sales turned to negative year-on-year growth in December last year and should remain soft this year amid oversupply and a weakening Chinese market, the report said.
At the same time, Singapore’s labor market should remain firm on the back of a broadening in employment growth in the second half of last year.
The MAS sees particular strength in information and communications technology roles amid a national push for digitalization.
The MAS kept monetary policy unchanged earlier this month, in line with an ongoing global trend in monetary policy pauses as growth and inflation underperform.
It retained a cautionary tone about US-China trade friction.
“Trade tensions remain a key downside risk for the economic outlook, although the risks could come on the upside as well: a meaningful reduction in tensions would boost confidence and spur investment,” the report said.
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