Singapore's economy is likely to be adversely affected by a looming growth slowdown in Indonesia and the recent plunge in the rupiah, economists say.
They note that while the overall impact may prove to be small, a pull-back in South-east Asia's largest economy could hurt the city-state, mainly through trade and tourism links.
Indonesia hiked interest rates last Thursday after a sharp fall in the rupiah, which has plunged 12 per cent against the US dollar this year to reach a four-year low.
The move calmed markets but led some economists to cut forecasts for growth, as the weak currency worsens inflation and higher interest rates hurt spending.
More grim data was released yesterday. Indonesia's inflation jumped for a third month and its trade deficit ballooned to a record US$2.3 billion (S$2.9 billion) in July, while factory activity fell for the fourth month in a row.
Bank of America Merrill Lynch economist Chua Hak Bin expects Indonesia's economy to grow 5.6 per cent this year, down from a previous tip of 5.8 per cent, and 5.7 per cent next year, down from 6.2 per cent previously.
This, in turn, will have some spillover effects on Singapore. A weaker rupiah makes Singapore's exports to Indonesia more expensive, while slower growth in Indonesia also translates into lower demand for Singapore shipments.
"From a trade perspective, Singapore appears the most vulnerable to a growth slowdown in Indonesia, especially if refined oil exports to Indonesia shrink," said Citi economist Kit Wei Zheng.
Indonesia accounts for about 8 per cent of Singapore's total trade, making it the Republic's fifth-largest trading partner. Singapore also shipped 10 per cent of non-oil re-exports to the country, according to the latest figures by trade agency IE Singapore in July.
But any dip in Singapore's and Asean's exports to Indonesia and China - another major export market that is slowing - is likely to be offset by an anticipated pickup in growth in the developed economies, Mr Kit added.
Services activity may also be hurt, especially financial services, transport and tourism, he said.
In tourism, Singapore is again relatively more vulnerable as Indonesia is among its largest sources of tourists, making up almost a fifth of visitor arrivals.
Trade-related sectors like logistics and transport will be hit too, said UOB economist Francis Tan.
So far, however, the impact has been fairly minimal, said CIMB economist Song Seng Wun.
With the economy still relatively resilient for now, Indonesians "are still coming to Singapore for business or leisure, except that they have to bring more local currency to change into Singdollars", he quipped.
"Of course, if there were to be a crisis of confidence leading to a sharper deceleration of Indonesian growth momentum, then our recovery will be at risk," Mr Song added. "For now, we don't see this worst case as the base case."