SINGAPORE (Jan 22): Fitch Solutions Macro Research says it expects the Singapore government to adopt looser fiscal policy for FY19/20 (April-March) in an effort to cushion the economic slowdown due to unfavourable global economic conditions.

Finance Minister Heng Swee Keat is scheduled to deliver the 2019 Budget statement on Feb 18.

“This comes at a time when global economic growth already peaked in 20 18 and growth in major economies such as the US, Europe, Japan and China will slow in 2019, which increases downside risks to Singapore’s export-oriented economy, as trade uncertainty continues to loom,” Fitch Solutions says in a commentary on Monday.

“We believe that rising external downside risks to the Singapore economy are likely to prompt policymakers to adopt policies to cushion the economy through domestic-oriented initiatives,” it adds. “As public finances remain healthy, there is room for the authorities to provide some support to the slowing economy.”

The research group notes that Singapore’s economy ended on a soft note in 4Q18, with real GDP growth cooling to 2.2% y-o-y – marking the weakest pace of expansion since late-2016.

The way Fitch Solutions sees it, the city-state’s export-oriented manufacturing sector remains under pressure amid slowing global demand for electronics. Singapore’s manufacturing purchasing managers’ index falling for the fourth straight month to 51.1 in December 2018.

“In our view, an area that could see support is public sector infrastructure, given that it has been a drag to the economy in 2H18. Infrastructure investment has been a key theme in the previous two budgets, and this has the potential to feature prominently again as the investments will bode well for the city-state’s long-term development prospects,” Fitch Solutions says.

It adds that a bumper budget with large fiscal transfers to Singapore citizens could be a sign that elections could be brought forward to 2019.

“Should we see fiscal transfers to a large proportion of Singapore citizens surprise aggressively to the upside, this would suggest that the PAP may be looking to call elections in 2019 as it has already shaped up the fourth generation leadership in 2018,” Fitch Solutions says. “This also plays well in PM Lee’s plans to hand over the reins to his successor before he turns 70 after the general elections.”