LOWER FOR LONGER
Singapore’s GDP grew by 0.7% y-o-y in 2019, a dip from the 3.4% growth registered in 2018 and the slowest pace of growth since 2009. The sluggish performance was associated with the brunt of the Sino-U.S. trade tensions and cyclical slowdown in the electronics sector that weighed more significantly on trade related sectors. The performance of Singapore’s economy is expected to remain muted in 2020 on the back of heightened external headwinds that may continue to cloud Singapore’s trade prospects and imperil business and consumer confidence.
Further, the COVID-19 outbreak could likely be more inimical to economic growth in 2020, effecting a downward revision of the Ministry of Trade and Industry (MTI)’s forecast to -0.5% - 1.5%. Should the outbreak be protracted, an imminent recession could be expected. In the next five years, the Singapore economy could be looking at a lower GDP growth at a CAGR of 2.3% as compared to 2.9% (2015-2019) and 6.7% (2010-2014), according to Oxford Economics estimates (Figure 1).
The effect the COVID-19 will have on the real estate market in Singapore is currently unknown and will largely depend on both the scale of the outbreak and how long it continues. A prolonged outbreak could have a significant impact on certain sectors of the property market in Singapore.
Given the heightened uncertainty, a higher degree of caution should be exercised when relying upon any forward looking statements highlighted within this publication.
FIGURE 1: SINGAPORE'S REAL GDP GROWTH
Singapore’s total merchandise trade amounted to S$1,022.25 bn in 2019, a 3.2% y-o-y dip from 2018. Exports declined more sharply than imports, registering a 4.2% y-o-y contraction. With Singapore being an export reliant economy, the ongoing Sino-U.S. trade war and geopolitical upheaval have weighed on global trade flows, causing a ripple effect onto Singapore’s trade performance in the past year.
Nevertheless, despite China being Singapore’s top trading partner, Singapore’s exposure to other major trading partners are well-diversified. Other key partners, including Hong Kong, Malaysia and European Union, account for 30.8% of total merchandise exports, which collectively outweigh export volumes to China (Figure 2). The diversified nature of Singapore’s trade portfolio thus helps to reduce susceptibility to external risks.
ESTABLISHING NEW TIES
In 2019, there were considerable efforts to establish new and upgrade existing trade agreements to alleviate the economic impacts on the back of the heightened external risks.
More partnerships are expected for 2020, following continuous efforts in the previous year, such as the Regional Comprehensive Economic Partnership,
which is touted to be the world’s largest trade initiative. Further, with Singapore’s economy gearing up to be a Smart Nation, digitalisation will continue to be a key focus in cross-border trade activities. One prominent example is the Digital Economy Partnership Agreement between Singapore, Chile and New Zealand, which will be formally signed off this year. Looking ahead, it is likely that this trend will persist as Singapore continues to expand its global trade network.
FIGURE 2: SINGAPORE'S TOP 10 TRADING PARTNERS IN 2019 (MERCHANDISE EXPORTS)
FAVOURABLE MACRO ENVIRONMENT
LOWER INTEREST RATES
The U.S. Federal Reserve cut its rates three times in 2019 to the current benchmark range of 1.50%-1.75%, on the back of the slowing global economic momentum and muted inflationary pressures. Rates are expected to be held steady in 2020, amid ongoing economic uncertainties such as the
As the SOR and SIBOR are highly correlated to the U.S. Fed rates, the lower interest rate environment in 2020 will set a more favourable position for home mortgage and commercial lending. This will boost consumer spending, which is expected to dwindle further, and alleviate the impact of the sustained weakness on the Singapore economy.
EASING MONETARY POLICY
The monetary policy was eased slightly in October 2019, the first time in three years. This guides a weaker appreciation of the Singapore dollar. Similarly, other Asian central banks, such as in Indonesia, Philippines and Thailand, have adopted more accommodative monetary policy stances as support measures on the back of the subdued macroeconomic outlook. Prolonged weakness in the global trade conditions might see further easing of the monetary policy.
Further, the expansionary Singapore Budget 2020 that amounted to a historic high deficit of an estimated S$10.95 bn, will provide fiscal support to bolster
FIGURE 3: U.S. FED RATE, 3M SOR AND 3M SIBOR
FIGURE 4: US DOLLAR AGAINST SINGAPORE DOLLAR