(Oct 15): Singapore offers a small ray of light in a faltering global economy.
The country that's so intimately tied to the rhythms of global commerce dodged a recession in the third quarter, figures Monday showed. Singapore simultaneously eased monetary policy, the first such step since 2016, as anticipated. That it did so cautiously suggests at least some of the doom and gloom about the trajectory of world growth might be overdone.
Sure, monetary officials would prefer a brighter economic picture; but in a world awash with warnings about global recession and angst about central banks running low on ammunition, Singapore's reading of the economic terrain could be a relative balm.
The Monetary Authority of Singapore on Monday “slightly” reduced the rate of desired appreciation by the local dollar — which could be interpreted as minor easing. As a small, trade-dependent state, Singapore stimulates or slows growth mainly by adjusting the preferred path of its currency. While the move was forecast by most economists surveyed by Bloomberg, a significant minority expected the central bank to be more aggressive, particularly against the global backdrop of the US-China trade conflict, a separate spat between Japan and South Korea, Brexit travails and the prospect of recession in Germany.
So monetary authorities could have come out guns blazing. That they chose not to suggests maybe, just conceivably, the world economy could scrape through this rough patch.
The MAS rightly acknowledged that 2019 will be tough. Gross domestic product increased 0.6% in the July-to-September quarter, compared with the prior three months. While better than the revised 2.7% contraction logged in the second quarter, that’s well below the 1.2% growth tipped by economists. The full-year figure will be about 0.5%. Not a great performance, but not catastrophic.
Singapore is even cautiously optimistic about next year, when it expects growth to “improve modestly.” Do these officials know something we don’t?
The dismal truth is, the prevailing narrative has become so pessimistic that anything short of awful is a welcome improvement. As recently as August, Singapore signalled the possibility that there wouldn’t be any growth at all this year. I wrote then that the city-state’s deep cut in its forecast was emblematic of the times. But just because a great year for the global economy in 2020 is off the table doesn’t mean a deep downturn is in store.
The MAS has left itself room to do more (all central banks do). And lots could still go wrong: Beijing and Washington's unwritten detente could fall apart, the American consumer could throw in the towel, Japan's consumption-tax hike could precipitate a recession, and so on.
Ministers and central bankers converging on the International Monetary Fund in Washington this week would do well to pull their colleagues from Singapore aside for a quiet chat. Few have as much at stake in a solid global economy. Ask them what they see could go right, not simply the ills that may transpire.
And above all, thank them for skipping the drama.
