SINGAPORE (July 4): Singapore’s central bank said tail risks to global economic growth have increased “significantly” in the past six months because of a pick-up in inflation and trade tensions.

“The world has clearly moved from trade tension to trade conflict,” Ravi Menon, Managing Director of the Monetary Authority of Singapore, told reporters on Wednesday at the release of the bank’s annual report. “If this escalates into a trade war, all three engines of global growth -- manufacturing, trade, and investment -- will stall.”

With the US threatening to slap higher tariffs on goods from China, Canada, the European Union and others, concerns are mounting that the trade conflict will spread, undermining global growth. That’s on top of risks from higher oil prices, rising global interest rates and a stronger dollar.

Menon said the direct impact of higher tariffs will be limited, but the consequences will be “dire” if the conflict spreads.

Growth in Singapore’s export-reliant economy remains on a solid footing, but will be hit if global trade takes a knock. Menon reiterated the MAS’s growth forecast of 2.5% to 3.5% for this year.

“If this keeps on going like this, we are certainly going to feel the impact being such an open economy,” the MAS chief said.

Global central banks, including the MAS, have started to tighten monetary policy in line with a stronger growth momentum. The MAS uses the currency as its main tool rather than interest rates, and shifted to a tightening policy stance in April. The MAS expects core price growth to average in the upper half of its 1% to 2% forecast range this year.

“We’re not calibrating monetary policy to address tail risks, so for now, that’s not the case,” Menon said. “If the trade conflict becomes much more serious, then it’s no longer a tail risk, it becomes current reality, in which case, monetary policy will have to take that into account.”

Menon also made the following comments at the press briefing:

On Singapore’s property market:
MAS closely monitoring developments in residential property market, remains committed to maintaining sustainable market Recovery is welcomed but needs to be in line with economic fundamentals “If property prices rise too rapidly, they will outpace the growth in income, households will then have to take on more leverage than they are able to manage” “This risk will be compounded as interest rates rise” Increasing prices also raise the risk of “destabilising market correction” when additional supply comes on line

On financial services:
Fintech estimated to have contributed close to 2,000 jobs in 2016, 2017. Financial services in total saw net increase of 7800 jobs Foreign exchange average daily trading volumes in Singapore declined by 6.7% last year, compared to 20.5% increase in 2016

On 1MDB:
MAS providing information to authorities proactively on 1MDB “We are still looking at certain individuals and there are others who we are looking forward to interview” MAS in close contact with 1MDB task force, met with them twice MAS may relook at banks again if there is new evidence, but so far, that hasn’t been the case “We’re looking very closely at new information that’s emerging from Malaysia and other places to see if any action on our part is warranted. But the investigations into individuals continues”