New Wave of Protectionism Poses Threats for Export-Dependent Singapore

Dampening global trade will result in muted growth forecasts for Singapore in 2017, according to ICAEW’s latest Economic Insight: South East Asia report. However, the outlook for the city-state remains optimistic with overall GDP growth forecast at 3.5% in 2018, as global trade gradually improves.

ASEAN economic outlook remains reasonably positive despite gloomy global economic and political volatility. Recent data points towards a pickup in trade for several economies like Vietnam and Singapore, and ASEAN central banks may be able to ease policy to support growth.

The key external risk to ASEAN growth in the next couple of years is the potential for a slowdown in credit growth in China. This would weaken global demand for raw materials, key exports for Indonesia and Malaysia. Additionally, China’s demand for goods imported from Vietnam would suffer, as would Chinese tourist flows to Thailand, and Singapore’s activity as a transport and logistics hub for all of the above sectors.

As a key trading region, ASEAN economies will also be closely following trade policy debate in the US ahead of President Trump’s inauguration. More positively though, the region is relatively insulated from the effects of a ‘messy Brexit’ in the UK.

ASEAN economies are also vulnerable to a more generalized slowdown in globalization or an erosion of the broad consensus in favor of free trade. Many economies in the region such as Indonesia have been highly successful in moving up the global value chain as a result of the opportunities presented by free trade and investment flows.

“In order to raise its competitiveness and sustain its growth trajectory, Singapore has to fix a number of structural challenges associated with a loss of competitiveness among some key manufacturing sectors which might otherwise dampen growth over the coming years,” said Priyanka Kishore, ICAEW Economic Advisor & Oxford Economics Lead Economist.

“The adjustment in property prices is also a risk worth monitoring – banks look well capitalized and there seems little chance of a financial crisis, but a prolonged spell of falling property prices could slow growth which will impact household wealth.”

According to the Oxford Economics/Control Risks Economic and Political Risk Evaluator, the region performs relatively well on measures of political, economic, exchange rate and credit rating risks compared to other major emerging markets. Singapore scores well on economic and financial risk metrics, boding well for sustainability of growth in the republic.

Mark Billington, Regional Director, ICAEW South East Asia, said: “Deals like the Trans-Pacific Partnership (TPP) are important not only for their potential to directly boost trade and investment flows, but also to help embed good business practice in signatory countries. If momentum towards deals’ ratification seems to be slowing, governments and businesses should look at alternative measures to improve business environments.”

Recovering commodity prices to support Indonesia’s GDP growth of 5.1% in 2017

Indonesia has excellent growth prospects despite challenges in business growth. Rate cuts by the central bank of Indonesia in September and October and stable inflation rates will support private spending in 2017, in addition to the government’s potential acceleration of budget spending.

Global trade recovery key to 4.3% GDP growth forecast for Malaysia in 2017

Subdued global trade and slowing private demand have been partly offset by large increases in government spending in Malaysia in 2016. Domestic demand is set to help spur growth as Malaysia weathers challenges from global oil pricing, depreciation of the Ringgit and the US decision on the Trans-Pacific Partnership (TPP).

Vietnam is South East Asia’s bright spark, with GDP expected to grow at the rate of 6% in 2016 and 6.7% in 2017

Despite a slowdown in activity in Vietnam during the first half of 2016, growth prospects remain strong due to record levels of Foreign Direct Investment (FDI) and strong domestic fundamentals. FDI is on track for another record year in 2016 – attracted by low costs, improving infrastructure and skills, and a deregulated business environment increasingly open to 100% foreign ownership.


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