2015 a ‘year of two halves’ for economy

The first half of next year will remain difficult but the second half will be “very promising”, said Mr Maguire (centre).
The first half of next year will remain difficult but the second half will be “very promising”, said Mr Maguire (centre).ST PHOTO: NG SOR LUAN

THE first six months of next year will remain difficult for the Singapore economy but prospects for the latter half are brighter, according to ANZ’s Asia-Pacific chief economist Glenn Maguire.

He told the 400-strong audience at The Straits Times Global Outlook Forum yesterday that 2015 will be a “year of two halves” for Singapore.

Economic restructuring efforts will continue to drag down growth in the first half of the year as Singapore pushes on with its transition to a higher value-added economy, Mr Maguire said.

“Singapore has made some very difficult policy choices... It’s squeezing the supply side of the economy to be able to move up the value-added chain.”

But these measures, while painful, are needed for the economy’s future success, he added.

He expects a turnaround after the first six months, when the falling prices of commodities like oil are likely to make consumers feel wealthier and spend more.

As domestic consumption rises in economies like the United States and Europe, the demand for Asian exports such as consumer electronics is likely to get a lift in the second half of next year.

“Singapore, as the region’s most open economy, is clearly going to start benefiting... The second half of 2015 is going to be a very, very promising one for Singapore,” said Mr Maguire.

Things are also looking up for the rest of the region.

While slowing growth in China and the prospect of higher US interest rates present some risks, Mr Maguire noted that these concerns are “manageable”.

Although China’s growth is slowing, the world’s second largest economy is still growing by about US$1 trillion (S$1.3 trillion) a year. This will benefit neighbouring countries as well since China is a major trading partner of many Asian economies.

And despite worries that the looming US interest rate hike will drive up borrowing costs in Asia and prompt stock sell-offs, Mr Maguire said it is not all doom and gloom. A move by the US to raise rates should be viewed positively as it signals that the US economy is “strong enough” to withstand higher rates, he said. A sustained recovery in the world’s largest economy would be a boon to Asian exporters like Singapore.

Meanwhile, the prices of oil and other commodities are expected to continue declining. This will further buoy Asia’s ascent given that most of its economies are net importers of energy, he added.

Lower commodity prices also mean Asian governments will spend less on food and fuel subsidies, which will help free up funds for pressing needs, such as infrastructure, said Mr Maguire.

On balance, the promising outlook for the regional economy means the resurgence of Asia will be even more noticeable next year, he concluded.

chiaym@sph.com.sg