SINGAPORE (Dec 31): The world is not going to be a kind place for small, trade-dependent countries such as Singapore. Geopolitical stresses, financial market turbulence, economic policy uncertainty in the big economies and trade frictions will make sure of that. The regional hinterland may offer some upside, but only so long as political and financial risks can be contained. As domestic demand in Singapore itself has been steady but lacklustre, the economy is vulnerable to shocks to external demand, which it depends on disproportionately. Fortunately, inflation is benign and the external surpluses remain large, giving the country considerable buffers to protect against a rough environment.
Modestly slower external demand with downside risks
The key drivers of the Singapore economy point to a slower pace of growth next year, at around 2.5%, compared with this year’s likely outcome somewhere in the region of 3.5%. This is seen in how the composite lead indicator — which predicts the course of the economy over the next year or so — has fallen for two quarters in a row. A look at the main international drivers of the economy supports this view: