Risks to S’pore growth outlook tilted to the downside: IMF

SINGAPORE — Singapore’s biggest external risk is a sharper-than-expected global slowdown that could potentially be magnified by “domestic vulnerabilities from elevated levels of leverage”, said the International Monetary Fund (IMF) in a report yesterday.

This global slowdown could manifest itself through a significant downshift in China and other large emerging economies, as well as weak growth in key advanced economies, said the IMF in a staff statement after a mission to Singapore. Tighter or more volatile global financial conditions could also lead to sharp asset price declines, a rise in credit spreads and a surge in the US dollar.

Singapore’s economic growth has slowed down markedly in recent years because of both cyclical and structural factors. Singapore’s gross domestic product (GDP) grew by 2 per cent last year, the weakest annual growth since 2009 when the economy was hit by the global financial crisis and shrank 0.6 per cent. Economic growth in 2014 was 3.3 per cent.

Looking ahead, the IMF said it expects Singapore’s GDP growth to slow further to 1.8 per cent in 2016 as the full impact of the slowdown in global trade and capital outflows from last year are felt, and private investment is held back by the uncertainties on the horizon. The forecast is within the Government’s official 1-3 per cent projection.

The country is at the halfway mark in its restructuring efforts to enhance productivity, a move the IMF recognises as vital for Singapore’s growth over the medium term.

“Slowing population growth and tighter immigration policies imply a slower expansion in its labour force. Against this backdrop, incentives for higher private sector spending on R&D and improving skill matches in the labour market, particularly for the higher value-added jobs, will be important in enhancing productivity and ensuring sustainable and inclusive growth,” said the IMF report.

Last month, the Monetary Authority of Singapore (MAS) unexpectedly eased its policy, guiding the Singapore dollar to a zero-appreciation stance against the currencies of its major trading partners. That was the third time the MAS had eased policy since the beginning of last year. It announced in January and October last year that it would allow the Singapore dollar to appreciate at a slower pace against the currencies of its trading partners.

The IMF said it viewed those moves as “appropriate”, but urged the MAS to remain on guard for signs of deflation and act accordingly if needed.