Explainer: Why care about the G20 summit? Jobs, property prices, S'pore's economy at stake

SINGAPORE — Global leaders’ meetings, including those taking place thousands of miles away, may seem boring to some. And to others, these official "talkfests" are unrelatable or even irrelevant.

But whether people here still have a job in the coming months, whether property prices are heading up or down, and even whether a favourite food stall will stay open — all these day-to-day realities can swing on the outcomes of such meetings.

The stakes are even higher now as world leaders gather in Osaka, Japan over the next two days — Friday (June 28) and Saturday  — for the annual Group of 20 (G20) summit.

The meeting comes against the backdrop of an escalating trade war between the world’s two biggest economies — the United States and China.

Economies all over the world are reeling from the effects. Markets are spooked, production of goods has been cut and, naturally, trade has slowed.

For Singapore, the ongoing clash spells trouble for its trade-dependent economy. The standoff has already sparked concerns of a possible recession in 2020.

So, why should the G20 meeting carry such significance? TODAY breaks it down.

WHAT IS THE G20 AND WHY IS THERE A SUMMIT?

The G20 was started in 1999 following several major international debt crises. The group was formed to bring together world leaders to discuss the major challenges of the day.

As the name indicates, it has 20 members — mostly countries, but the European Union (EU) counts as one member. They are: Argentina, Australia, Brazil, Britain, Canada, China, the EU, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the US.

When combined, the member countries represent more than 80 per cent of the world’s gross domestic product — the most commonly used measure of economic output.

Typically, leaders of non-member countries are invited to participate. Singapore, for instance, has been invited a few times. Prime Minister Lee Hsien Loong is attending the Osaka summit at the invitation of Japanese Prime Minister Shinzo Abe, said the Prime Minister’s Office. Mr Lee’s visit started on Thursday and will end on Sunday.

WHAT’S ON THE TABLE?

Economists told TODAY that the G20 meeting in Osaka is possibly more important than previous summits for one key reason. US President Donald Trump and China’s President Xi Jinping are meeting for the first time since trade talks between the two nations broke down in early May.

On June 18, Mr Trump gave markets some hope trade tensions would abate when he said in a post on Twitter that negotiating teams from the two countries would meet ahead of his “extended meeting” with Mr Xi in Osaka.

So, of all the meetings happening during the summit, the Xi-Trump meeting — expected to take place on Saturday — is the one to watch. But what’s so important about it?

Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said markets are hoping for a trade deal. Or at the very least, a ceasefire on fresh tariffs as both parties continue to engage each other. Either outcome would be good news.

But bad news could look like this: The possibility of no deal, no ceasefire and both the US and China continuing to engage in trade blows.

For the world’s economies, those latter scenarios translate to slow trade, the inflow of investments going down and layoffs going up, among other fallout.

WHY SHOULD SINGAPOREANS CARE?

To put it simply, Singapore’s economy will be hurt if the trade war continues. One economic report went even further to say that the Republic could be hurt the most among the major South-east Asian nations.

Singapore has already felt the effects. As of May, the country’s non-oil domestic exports — the most common measure of shipments out of Singapore — saw their sharpest dive since March 2016.

And on Thursday, Mr Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), the country’s central bank, warned that the Republic’s economy is likely to end the year weaker than previously expected because the trade war has stalled trade, manufacturing and investments.

CIMB Private Banking economist Song Seng Wun said if both the US and China do not play ball, the risk of a recession next year increases. If that happens, the multiplier effect will be wide-ranging, affecting everyone from the stallholder selling nasi lemak to companies dependent on trade, from the banker dealing with investments to the driver ferrying goods.

Singapore’s airport terminals and ports will become less busy. Fewer tourists flocking to Singapore mean less spending, affecting retail as well as the food and beverage sectors.

A company that manufactures here and supplies its products to China could see demand fall, as China’s economy slows from the trade war. That means it could cut down on logistics, since the company does not need as many drivers to ferry goods to the ports.

A POSSIBLE DOWNWARD SPIRAL OF JOB LOSSES, LOWER SPENDING

What’s next? The firm could possibly lay off one or two drivers. As numbers are falling, the company realises it does not need that many accounting officers, so some could be retrenched, said Mr Song.

For the stall selling nasi lemak, patronised by those workers, it sees one fewer customer on one day. The week after, however, it realises three or four of its regular customers are gone. That will affect supply and demand too. Soon, the stall owner realises that he or she no longer needs a stall assistant. That person could be headed towards the door. The owner also starts reducing the size of his orders to suppliers for rice and coconut milk.

Likewise, for the banking industry, investments and currency exchanges drop and some bankers might be redeployed or shown the door.

Singaporeans love to invest in property. And the property market might get more interesting after the G20 summit — depending on whether trade talks advance or take a further step backwards.

If there is no ceasefire or the trade war worsens, the risk of recession becomes greater. The private property market, say economists, is tied to the way ordinary people feel about underlying economic conditions at that point in time.

When fears of recession grow, the sentiment would be “don’t spend much”, said Mr Song. If buyers are tightening their belts, property developers would then be forced to slash prices or there could be an oversupply in the market, depressing prices further.

In that case, it becomes a buyers’ and not a sellers’ market.

Ms Ling said that the issue for Singapore is whether there could be a shallow and brief downturn or a deep recession. This hinges on the outcome of Mr Trump and Mr Xi’s talks.

“Singapore as a small, open economy is usually vulnerable to the global headwinds. A manufacturing moderation due to the drag from the US-China trade war is painful but hopefully does not cause a deep recession in the same fashion that the financial crisis in 2008 did,” she added.