Tepid demand and rising inflation are expected to weigh on Singa-pore's economy next year, according to the latest forecast from Nomura.
The Japanese research house has downgraded the outlook from "neutral" to "negative" for 2016, noting that weak global demand, higher interest rates, a tight property market and deteriorating demographics could crimp productivity growth.
It forecasts growth next year of 1.8 per cent. Over the next five years, Singapore's potential growth is expected to slow to 2.1 per cent, Nomura said.
Its outlook for Asia ex-Japan is not any better. Aggregate annual growth is forecast at 5.7 per cent, the slowest pace since 1998, said Mr Robert Subbaraman, head of global markets research Asia ex Japan at Nomura Singapore.
"Economic forecasters have consistently over-predicted Asian growth. Who would have thought that with interest rates in Asia cut to record lows and oil prices halved, that growth would slow for five years in a row," he said.
He cited structural headwinds from China's high debt levels, shrinking labour force and overcapacity leading to a decline in returns on capital and productivity.
"China will continue to do more monetary and fiscal easing, but these structural headwinds are too strong to get growth to rebound," Mr Subbaraman noted. At best, the easing policies will likely contain the pace of the slowdown. Economic growth for China is forecast at 5.8 per cent next year, he added.
Another potential Achilles' heel is Asia's financial cycle, which is "oversized in terms of high debt and high property prices".
"An abrupt reversal of Asia's financial cycle could lead to credit crunches in the region," he warned. "With China slowing and the Fed starting to raise rates, market liquidity could evaporate quite quickly."
Higher US interest rates could strengthen the US dollar against most Asian currencies next year, said Mr Craig Chan, head of FX strategy, Asia ex-Japan at Nomura Singapore. Nomura expects "an unusual year as Asia decouples from the Federal Reserve".
Mr Subbaraman said: "We expect only one Asian central bank to follow the Fed, and that's the Philippines. Many others will cut interest rates further, including China, Korea, Thailand and Indonesia.
"The Fed will lift off on Dec 17 but the trajectory is much shallower than past Fed hiking cycles. We see just two rate hikes next year, because it isn't clear that US inflation will pick up."