Straits Herald October 14, 2019

Singapore eased monetary policy for the first time in more than three years on Monday as the US-China trade war bites, while the export-reliant economy narrowly avoided recession in the third quarter.

The financial hub’s central bank joins 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.

And it has been hard hit in recent months, with growth rates and exports plummeting, as US-China tensions upend the global trading system.

The Monetary Authority of Singapore (MAS) said it will “reduce slightly” the slope of the band at which its currency is allowed to move, effectively allowing for a weaker dollar, as had been expected.

Instead of using interest rates, Singapore manages monetary policy by letting the local dollar rise or fall against a currency basket of its main trading partners.

“In the last six months, the drag on GDP (gross domestic product) 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,” MAS said.

Preliminary GDP data released at the same time showed 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 September 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 forecast the economy will likely grow by just 0.5 percent this year. The city-state last slipped into recession in the aftermath of the global financial crisis in 2008.

Song Seng Wun, a regional economist with CIMB Private Banking, said with the economy having narrowly avoided recession, MAS 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 told AFP.

“Perhaps the US-China phase-one deal adds to a little bit of hope for 2020,” he said.

President Donald Trump announced Friday that US and Chinese negotiators had reached a partial trade deal, bolstering hopes that the world’s two biggest economies may be on the path to resolving their long-running row.