(Sept 25): The global economy has put the bad years behind it and is now in a more dynamic phase that is much more supportive of Singapore’s growth than many realise. Moreover, the regional economies that Singapore services are also reviving, reinforcing the upside for Singapore. And, if that were not good enough, the domestic engines of growth in Singapore are beginning to improve as well, though some restructuring pains do remain. All in all, we could see a nice upside surprise in the country’s economic growth in the near term.

Global economy: putting the bad years behind
The global economy has improved fundamentally. After 10 years of financial crises, policy shocks and depressing political developments, many observers still find it hard to accept this but the facts speak loudly. For the first time in a decade, virtually every part of the globe is enjoying decent growth. The only exceptions are war-torn countries such as Ukraine or Iraq, or countries that are suffering political turmoil or struggling with economic mismanagement such as Venezuela.

Apart from unpredictable or unquantifiable risks such as geopolitical factors that could hold back the world economy, the other features of the current pattern of global growth are supportive of Singapore’s and Asia’s prospects:

  • First, the lead indicators remain positive, suggesting that the current pace of slightly above-trend global growth can continue. The Organisation for Economic Co-operation and Development lead indicators have moved positively for almost all the major economies in recent months. Surveys of purchasing managers point to rising new orders across both manufacturing and services sectors.
  • Second, in the early phase of synchronised growth across all the major economies, there will be spillover of demand into each other, one country’s recovery boosting demand in the others, which then flows back into the first, creating a mutually reinforcing upwards shift in growth.
  • Third, economic fundamentals remain supportive. Oil prices are in a sweet spot — low enough to help energy consumers and keep inflation low, but not so low as to cause shocks for oil producers. With inflation remaining low, there is little need for central banks to tighten so aggressively that they might cause a big slowdown. The modest withdrawal of easy money that we see should not throw the global recovery off track. At worst, bond and equity prices may correct sharply, but the knock-on effects on growth can be contained.
  • Fourth, as the world economy normalises, world trade volumes are also picking up — after a couple of years when world trade did not grow in line with global production. In other words, global growth is more import-intensive, and that is good for trade-dependent economies such as Singapore.

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