WhyItMatters

Economic risks far and near

The new year is traditionally heralded with hope and optimism, but dark clouds have been massing for some time now over the economic outlook for 2016.

The Singapore economy is tipped to grow by between 1 per cent and 3 per cent next year, according to official forecasts.

This muted pace comes as China's slowing economy continues to weigh on the region.

Conditions in developed economies such as the United States and in the euro zone are improving, but the impact on Singapore is expected to be limited as much of the pickup in those economies has been domestically driven.

The US Federal Reserve's impending interest rate hike will contribute to further uncertainty.

At home, firms face a tight labour market and rising costs. The volatile environment has cast a pall over business sentiment here, with households also affected. Some Singapore households and corporates are facing greater credit and currency risks amid rising interest rates and the global economic slowdown, the Monetary Authority of Singapore (MAS) said in its Financial Stability Review last week.

The annual review found that growth in overall household debt has moderated, but there are signs of vulnerability. About 5 per cent to 10 per cent of households have debt servicing ratios at above the stipulated maximum of 60 per cent, for instance.

In the corporate sector, balance sheet quality in Asia remains largely healthy, but companies are recording lower earnings.

Most firms can withstand interest and earnings shocks, but highly leveraged firms in certain sectors could be vulnerable in the uncertain operating environment, the MAS said. It noted that small and medium-sized enterprises, in particular, might be hit harder by currency volatility.

All in all, while the Singapore economy is unlikely to fall off a cliff, the bright spots are also few and far between, especially since a protracted period of slower global growth lies ahead.

A version of this article appeared in the print edition of The Straits Times on November 30, 2015, with the headline 'Economic risks far and near'. Print Edition | Subscribe