SINGAPORE - The United States-China trade conflict has had limited impact on Singapore so far, but the negative effects may be felt more for the rest of the year and beyond, said the Monetary Authority of Singapore (MAS) in its half-yearly macroeconomic review on Friday (Oct 26).
The trade war, coupled with the tightening global financial conditions, means Singapore's economy is likely to expand at a slower pace for the rest of the year, averaging in the upper half of its 2.5 to 3.5 per cent range, moderating slightly in 2019, said MAS.
The economy managed to expand at a "creditable pace", growing by an average of 3.4 per cent in the second and third quarters, below the 4.1 per cent growth in the preceding two quarters, despite the uncertainties of the ongoing trade war, which started in earnest in July with the first round of tit-for-tat tariffs imposed by US and China, said the central bank.
But economic uncertainties have increased since April, said MAS.
"Although there has been some detente between the US and several of its trade partners, trade tensions remain at the forefront of consideration for global growth prospects," it said.
However, Singapore stands to gain from some positive spillover, as international firms reconfigure their supply chains in response to tariffs on their businesses, said MAS.
Citing a recent survey by AmCham China and AmCham Shanghai, South-east Asia emerged as the top destination for US firms seeking to relocate their production sites abroad. The survey polled 430 American firms in China, of which around one-third have either moved or are considering moving their production out of China.
If sustained, the hub status of Singapore means the country can gain some of the positive spillover at the margin, especially in trade-related services such as wholesale trade, transportation and storage, said MAS.
The labour market is still expected to improve further, with wages rising by 3.8 per cent year on year in the first half of 2018 and total employment continuing to expand by 10,100 jobs in the same period.
The improved wage situation is expected to boost demand for domestic goods and services, helping to bolster the retail and food and beverage industry. This could also lead to an increase in consumer prices, though MAS said these domestic-facing industries are capped by manpower and market size constraints.
The increase in prices is also due to a rise in imported inflation and oil prices, said MAS. Oil prices were substantially higher than previously envisaged, but are expected to be relatively stable next year, it added.
This relative stability is due to the balancing out of price pressures by a range of forces. While supply outages and a tight global inventory may drive up prices, the ongoing trade tensions and instabilities in emerging market economies could have the opposite effect, said MAS.
Food prices could also rise mildly in 2019 due to improved demand. However, there could be upside risks posed by possible El Nino effects in late 2018 and early 2019 on the price of food around the world.
Core inflation rose to 1.9 per cent year on year in the third quarter, up from an average of 1.5 per cent in the first half of the year.
Overall, core inflation is expected to come in at 1.5 to 2 per cent for 2018 and 1.5 to 2.5 per cent for 2019. Headline inflation, for all items, is also expected to rise next year to above 1 per cent from the projected 0.5 per cent this year.