Spectre of inflation ‘dampens prospects for Singapore’

Prospects for the Singapore economy next year are bleak, and unlikely to be improved by government help, said The Straits Times’ supervising money editor Ignatius Low yesterday.
Prospects for the Singapore economy next year are bleak, and unlikely to be improved by government help, said The Straits Times’ supervising money editor Ignatius Low yesterday.PHOTO: BLOOMBERG

Prospects for the Singapore economy next year are bleak, and unlikely to be improved by government help, said The Straits Times’ supervising money editor Ignatius Low yesterday.

Speaking at a Global Outlook forum held to mark the launch of ST’s Asia Report website, Mr Low said the Government, which has often acted to ease previous slowdowns, has to contend with the spectre of relatively high inflation. Inflation, expected to come in at over 4.5 per cent this year, has spiked in part because of Singapore’s tighter foreign worker policy.

The ensuing labour crunch, which has contributed to a 6.1 per cent year-on-year rise in the cost of hiring a worker, has put a supply constraint on growing the economy.

Because of this, Mr Low did not think there was likely to be a fiscal stimulus by the Government, as this could worsen inflation. Neither will the Government ease monetary policy to help exporters; it is committed to a modest appreciation of the Singapore dollar – at least until April next year – to keep a check on inflation.

Noting that high inflation is currently more “politically damaging” to the Government than low growth, he added that there is a growing consensus that next year’s Budget statement is likely to be a contractionary one.

Mr Low said Singapore’s economy is still very dependent on the United States and Europe. For example, economists have found that Singapore’s exports to China are more closely correlated to the US economy’s performance than even China’s, because much of what it exports to China are intermediate goods whose final destination is North America. 

Hence, uncertainty in the West weighs heavily on Singapore’s prospects.

A “tech recovery”, which is under way for economies such as Taiwan and South Korea – thanks to a recent slew of smart mobile devices – will also likely pass Singapore by, said Mr Low. This is because Singapore is more a producer of PCs and computer servers.

Despite the lacklustre outlook, chief investment strategist for Standard Chartered Bank Steve Brice pointed to Singapore equities as a good bet next year, as the Straits Times Index is yielding higher dividends than the Government’s 10-year bonds. In particular, he pointed to real estate investment trusts (Reits) as outperforming the index as a whole.

But Reits’ drive to maintain high yields has led to a relentless spike in rents for small businesses, charged forum participant Wilson Tan, whose plastics manufacturing business recently saw an 80 per cent rise in rent. 

Mr Brice said global liquidity is indeed being poured into the few investments “in a currency that’s appreciating and one that’s generating yield,” like Singapore Reits. This is probably creating a bubble, he said, “but is it about to burst? I don’t think it is”.

rchang@sph.com.sg