Protracted US-China trade spat continues to weigh on Singapore’s economic growth

Published on 19 Aug 2019.

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RAM Ratings anticipates slower growth in Singapore’s economy for 2019 amid the long drawn-out US-China trade war and burgeoning global uncertainties stemming from Brexit, a slowing Chinese economy and the trade dispute between Japan and South Korea, among others. The trade-reliant city state’s GDP growth for the second quarter of the year was a meagre 0.1% – the slowest in a decade and way below our expectations – casting a shadow over its economic prospects in the near term. 

Growth was dragged down by exports which contracted by 1.4% in 2Q 2019, while on the supply side, the manufacturing sector saw a decline of 3.1% y-o-y after three years of expansion. Consequently, the Monetary Authority of Singapore has revised its GDP forecast to 0.0%-1.0% from 1.5%-2.5%. In view of the US-China stalemate and other external headwinds, RAM projects economic growth to decelerate to 0.3% this year. 

“Should current economic conditions persist until the end of the year, Singapore’s government might table an accommodative fiscal policy in its next budget to help cushion the slowdown,” says Esther Lai, RAM’s Head of Sovereign Ratings. In 2009, the government had tabled a Resilience Package to revitalise an economy that had been impacted by the Global Financial Crisis. Accordingly, we expect a policy response next February which targets SMEs in trade-related and manufacturing sectors. Singapore’s sizeable fiscal reserves – about SGD1 tril or two times its GDP – are viewed positively in enabling it to shoulder the fiscal burden. Further, given the government’s past record of conservative fiscal planning and fiscal discipline, Singapore has financial flexibility when it comes to policymaking.  

Prime minister Lee Hsien Loong had announced at the National Day Rally on Sunday the government’s intention to revise upwards the age of retirement (to 65 from the current 62) and re-employment (to 70 from the current 67) by 2030. In addition, Central Provident Fund contribution rates for employees above the age of 55 will be increased, effective 2021. As an aging population (approximately 14% of the population is aged over 65 years) can exert negative pressure on long-term consumption growth and the country’s fiscal position, these policies are viewed favourably. 

Despite an expected lacklustre economic performance in the near term, RAM derives comfort from the country’s resilient fundamentals. As such, Singapore’s gAAA(pi)/Stable and seaAAA(pi)/Stable ratings remain intact, supported by its formidable reserves buffer and track record of fiscal prudence.


Analytical contact
Toh Wei Liang
(603) 3385 2620

Media contact
Padthma Subbiah
(603) 3385 2577


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