SINGAPORE (Dec 25): The past 12 months have been mostly kind to Singapore. The economy has regained some traction, and that has lifted the mood somewhat. Looking forward, we can say two things. First, the economic prospects in 2018 appear encouraging — next year may well be even rosier than this year’s better-than-expected outcome. Second, this economic rebound helps Singapore buy time to address its structural challenges. It is crucial that the respite Singapore has gained from the global economic recovery be put to good use in crafting bold responses to these challenges.

The economic cycle: 2018 will be better than 2017
First, global demand is likely to surprise on the upside. We challenge the view that after a stronger-than-expected 2017, 2018 must inevitably see a tapering off:

  • Virtually all countries in the world except those in crises are growing for the first time in a decade. That lends resilience to this global rebound. It also means that demand in one economy translates into export demand for others, which can produce a nice positive feedback loop — the kind that delivers upside surprises to forecasters. The lead indicators show the US, Japan and Europe likely to grow at close to, or just above, trend rates. The tax cuts in the US should add even more juice to the American economy. Encouragingly, the prospects for large emerging economies such as India, Brazil, Russia and Turkey are also brightening — that will help offset the small deceleration likely in China.
  • Recent data has reinforced our view that a recovery in capital spending seems underway in advanced economies. Even better still, we now have indicators suggesting that a rising investment cycle is taking shape in developing Asian economies where imports of capital goods are rising again. As the uncertainty of the past few years ebbs, business confidence everywhere is improving, helping to release pent-up demand for new productive capacity. In addition, so many new technologies — artificial intelligence and other digital technologies, renewable energy, advanced manufacturing processes such as 3D printing and new bio-medical therapies and drugs — are taking off simultaneously. That means huge new business opportunities promising higher returns are emerging that companies will have no choice but to invest more aggressively in. Failure to invest could mean a loss of competitive edge vis-à-vis competitors.
  • Oil prices are now in a sweet spot, high enough to provide respite to oil producers but low enough to support oil consumers. The outlook for supply and demand suggests that oil prices will remain in this range for some time. That spells better news for Singapore’s beleaguered offshore and marine sector, which should begin a modest recovery.

Second, in the past few months, global trade volumes have started growing faster than world economic output. This revival of trade is hugely positive for Singapore, which is one of the most open economies in the world. If the revival in capital spending does indeed materialise, global imports will accelerate as capital goods demand tends to be import-intensive. Singapore’s manufacturing sector will go from strength to strength as a result, pulling allied activities such as transportation, storage and trade finance along.

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