SINGAPORE (Oct 23): The International Monetary Fund (IMF) has slashed its 2019 growth prediction for Singapore to 0.5%, down from its previous estimate of 2% in July.
This is the second downward revision by the IMF, which had forecast a 2.3% growth for the city state in its World Economic Outlook in April.
Amid an uncertain global economic outlook plagued by the downturn in electronics and exports, Singapore officials currently forecast a growth rate of between 0% and 1% this year.
Jonathan Ostry, Deputy Director of the IMF’s Asia and Pacific department, notes that the dark clouds are not about to be lifted just yet.
“Growth is projected to remain subdued at 1% in 2020, given Singapore’s dependence on external trade,” Ostry says at a press conference on Wednesday.
But Singapore’s export-oriented economy is not the only one to feel be hit by “a likely prolonged period of heightened global policy uncertainty”.
The IMF has also lowered its projection for Asia’s growth to 5% for 2019 and 5.1% for 2020.
The IMF now considers the region to be highly vulnerable, in spite of its strong trade and financial integration. And this has translated into the region having the slowest rate of expansion since the 2008 global financial crisis.
Even so, IMF notes that Asia will remain the fast-growing region in the world, contributing more than two-thirds to global growth.
Regional and global superpower China, however, is expected to see its growth fall to 6.1% this year, from the 6.6% it logged in 2018. The decline is expected to into 2020, with growth forecast of 5.8%.
This comes from a transition to a more sustainable growth model based on quality, as well as the burden it is facing from the ongoing US-China trade war, says Ostry. However, he adds that a range of macro stimulus measures are underway to mitigate the extent of the slowdown.
India is also projected to grow at 6.1% in 2019, slowing from a 6.8% growth last year.
Meanwhile, Asean is forecast to see moderate growth of 4.6% this year, before hitting some 4.8% in 2020.
Hong Kong is expected to be the worst hit, with GDP growth slowing to 0.3% – a nosedive from the 3% it logged last year. The lower forecast is also a steep drop from the IMF’s previous growth prediction made in April – before the commencement of the political unrest – of 2.7% for 2019.
On the whole, the IMF considers a possible escalation of the US-China trade war as a major risk inhibiting countries’ growth going forward.
As such, its baseline forecasts were made on the assumption of a continuation of all the US tariffs imposed or announced before October.
However, the two superpowers had in fact come to a deal early this month. The US had agreed to hold off on increasing tariffs on US$250 billion ($340 billion) of Chinese goods from 25–30%, on account of the celebration of China’s 70th anniversary. These tariffs were scheduled to take effect from Oct 15.
Consequently, China agreed to step up its purchases of agricultural products from the US.
For now, the IMF says that attaining a durable trade agreement “remains subject to protracted and difficult trade negotiations”. It adds that new setbacks could weigh on confidence, thereafter weakening trade, investment and growth.
It also envisions other risks such as tighter financial conditions in Asia, following abrupt changes in investors’ risk appetite. This is a result of either new trade restrictions or a reassessment of valuations. And the resultant capital outflows coupled with the rise of the US dollar and higher costs of dollar financing could slow the region’s growth.
Additionally, oil jitters could also pose challenges to the region in the form of higher oil prices and a resultant slowdown in infrastructure investments.
To this end, the IMF is recommending Asian economies to adopt accommodative monetary policies, in line with most of the countries’ current practice. It has also suggested that countries with fiscal space such as China, South Korea and Thailand move towards expansionary fiscal policies.
But, for starters, the fund is proposing that Asian countries lay the groundwork for strong, sustainable and inclusive growth to foster further trade integration.
It also suggests a reformation of products, say through pro-competition policies and labour markets. This can be done through skills upgrading schemes that increase labour supply, it says.
