Singapore must fix structural challenges to stay ahead, says report

SINGAPORE — Joining the chorus of voices warning of the impact of protectionism on Singapore’s economy, the Institute of Chartered Accountants in England and Wales (ICAEW) and Oxford Economics yesterday also cautioned that the Republic needs to address its loss of competitiveness to enhance its growth prospects.

Mr Priyanka Kishore, ICAEW economic adviser and Oxford Economics lead economist, said: “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.

“The adjustment in property prices is also a risk worth monitoring — banks look well-capitalised 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.”

In a joint report on South-east Asia, ICAEW and Oxford Economics said a “new wave of protectionism” poses threats for Singapore as an export-dependent economy. It added that Singapore could see muted economic growth of 1.4 per cent this year — in line with the official forecast.

Last month, the Government cut the top end of its full-year growth forecast for this year by half a percentage point, with the economy now expected to grow between 1 and 1.5 per cent.

Despite the challenges, the report said that government investment and “solid” consumer spending growth should support Singapore’s gross domestic product (GDP), which will likely grow 2 per cent next year, and 3.5 per cent in 2018 when global trade gradually improves.

Regionally, the report said that global risks, such as the slowdown in credit growth in China and the impact of United States President-elect Donald Trump’s policies, could weaken the Asean (Association of South-east Asian Nations) economies.

China’s credit situation, in particular, will weaken global demand for raw materials, which are 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,” the report said.

It added that Asean businesses will be watching Mr Trump’s moves closely. The President-elect has proposed imposing a 45 per cent tariff on China’s exports, among other policies. Should this come to pass and China retaliates, world trade will undergo a sharp slowdown, hurting Asean economies.

Separately, an S&P Global Ratings report said the biggest factor in Asia-Pacific’s economic outlook is the uncertainty following Mr Trump’s shock electoral victory. “The potential downside scenario for Asia-Pacific is trade policy,” said Mr Paul Gruenwald, S&P Global Ratings’ Asia-Pacific chief economist. On the proposed tariffs on China’s exports, he said: “Such an action will almost certainly generate a strong response from the Chinese authorities, and risks starting a trade and investment war between the world’s two largest economies, which is in no country’s interest.”

On Tuesday, the Asian Development Bank also highlighted the dangers of protectionism to the region. It said that strengthening trade linkages and attracting foreign direct investment would contribute to growth in Asia and the Pacific, and improve resilience against protectionist forces.