Singapore yesterday eased monetary policy for the first time in more than three years as a US-China trade dispute bites, while the export-reliant economy narrowly avoided recession in the third quarter.
The financial hub’s central bank joined others around the world, from Europe to the US, in loosening policy as fears mount of a global economic slowdown.
The city-state has traditionally been the first among Asia’s export-driven economies to be affected during a downturn, making it a closely watched barometer of demand for goods and services for the rest of the region.
It has been hard hit in the past few months, with growth rates and exports plummeting, as US-China tensions upend the global trading system.
The Monetary Authority of Singapore said it would “reduce slightly” the slope of the band at which its currency is allowed to move, effectively allowing for a weaker Singaporean dollar, as had been expected.
Instead of using interest rates, Singapore manages monetary policy by letting its currency rise or fall against a currency basket of its main trading partners.
“In the last six months, the drag on GDP growth exerted by the manufacturing sector has intensified, reflecting the ongoing downturn in the global electronics cycle as well as the pullback in investment spending, caused in part by the uncertainty in US-China relations,” the authority said.
Preliminary GDP data released at the same time showed that Singapore’s economy narrowly avoided tipping into a technical recession, defined as two consecutive quarters of contraction.
It expanded 0.6 percent in the three months to last month on a quarterly basis, bouncing back from a shock 2.7 percent second-quarter contraction. The economy grew 0.1 percent on a yearly basis.
The manufacturing sector, a pillar of the trade-dependent economy, shrank 3.5 percent, following a 3.3 percent contraction the previous quarter.
Capital Economics Ltd forecast the economy will likely grow 0.5 percent this year.
The city-state last slipped into recession in the aftermath of the global financial crisis in 2008.
CIMB Private Banking economist Song Seng Wun (宋城煥) said with the economy having narrowly avoided recession, the authority must have felt that a slight tweaking of policy was enough.
The central bank will be hoping that “maybe growth in 2020 might be better than 2019,” Song said.
“Perhaps the US-China phase-one deal adds to a little bit of hope for 2020,” he said.
US President Donald Trump on Friday announced that US and Chinese negotiators had reached a partial trade deal, bolstering hopes that the world’s two biggest economies might be on the path to resolving their long-running row.
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