Singapore is one of the most open economies, let alone emerging market economies, in the world and therefore is very much in the firing line of any protectionist trade winds that blow across the globe in 2017.
Singaporean manufacturing has spent a lot of 2016 under pressure and movements within the manufacturing environment in Asia – China taking on higher skill sectors, high Singapore exposure to increasingly competitive markets – this pressure would have continued in 2017 regardless of who took over from President Obama.
Similarly, local SMEs have maintained concerns over a rise in cost of financing and this will drive a slowdown in investment growth in the country. Higher costs are also expected to see the average household limit their exposure to credit in coming months too.
The SGD has a lot of room to weaken and we believe that it is as much as 10% overvalued at current levels following a near 15% appreciation since 2010. This will not move the Monetary Authority of Singapore to loosen policy further however and we foresee a simple extension of the current neutral policy stance.
This precludes that the economy doesn’t fall into recession and although we think there is a limited chance of this, news from the local jobs market – job seekers outnumbering positions that are vacant – remains poor and in the absence of an increase in output activity the MAS may feel the need to shift policy in an extraordinary policy meeting. We think that this could take place in February depending on noises from the new US President and the reaction from Beijing.