Why It Matters

Be prepared for the headwinds

The economic outlook has many people in the markets bracing themselves for a rise.
The economic outlook has many people in the markets bracing themselves for a rise. ST PHOTO: ALPHONSUS CHERN

One grim economic forecast won't bother most of us but the way they have been piling up this week should make even the most laid-back observer sit up and take notice.

The doomsayers have been queueing up to pronounce on the Singapore economy and it's been bad news all the way.

DBS Bank cut its forecast of full-year growth from 2.4 per cent to 1.8 per cent on Wednesday. Global ratings agency Moody's on Tuesday had slashed its estimate from 3 per cent way down to 1.7 per cent.

If that wasn't enough, ratings agency Standard & Poor's chipped in yesterday, lowering its 3 per cent tip made in July to 2.4 per cent.

These steep revisions came just a week after the Monetary Authority of Singapore said that private-sector economists have pared down their growth forecast from 2.7 per cent to 2.2 per cent.

The numbers differ but the experts are all in agreement on the chief cause of what looks like hard times ahead: weak demand from China, Singapore's biggest export destination. There is also the uncertainty over when the United States might raise interest rates and the weakening global economy.

Local companies have problems closer to home as well, in the form of labour shortages and rising costs.

Economic forecasts, like those for the weather, can be wrong, of course, but so many reputable organisations singing the same gloomy song serves as an unavoidable warning of harder times ahead.

There is already talk of a technical recession looming, given that the economy shrank 4 per cent in the second quarter while this quarter looks increasingly fragile. A further twist could come next week when the US Federal Reserve could raise interest rates for the first time in nearly a decade.

Many forecasters - yes, them again - reckon the Fed will hold off in the light of the shaky global economy, but many people in the markets are bracing themselves for a rise. That could spark a further yuan devaluation and spur capital to flee this region for higher returns in the US. Whatever term you use - storms, headwinds - the outlook is unsettled and investors need to be prepared.

A version of this article appeared in the print edition of The Straits Times on September 11, 2015, with the headline 'Be prepared for the headwinds'. Print Edition | Subscribe