Singapore is highly vulnerable to a sustained trade slowdown in China, according to a report out yesterday.
It examined 23 economies in the Asia-Pacific region to identify those that could be hit by declining demand in China and those that could gain from longer-term shifts in investment and trade connections.
Trade-driven economies like Singapore are the most exposed to a sustained slowdown, it noted.
This is because they are key nodes in the manufacture of intermediate products, especially electronics, which are particularly exposed to tensions between the United States and China.
Moody's Investors Service expects the largest deceleration in real gross domestic product (GDP) growth this year will occur in Mongolia, Singapore, South Korea, Vietnam and Hong Kong, as they are among the most trade-oriented and most reliant on Chinese demand.
However, higher public spending could mitigate flagging external demand, especially in Singapore, South Korea and Taiwan, whose strong fiscal positions provide scope for potentially greater support.
"We expect the outlook for the region's exports, and consequently economic growth, to continue to weaken, given our projection of a slowing in Chinese real GDP growth to 6 per cent in 2019 and 2020, from 6.6 per cent in 2018 and 6.9 per cent in 2017," the report said.
Singapore will also be exposed to a generalised downturn in China's demand for commodities and goods sourced from other countries in the region, given its role as a shipping, logistics and commodities trading hub.
Higher public spending could mitigate flagging external demand, especially in Singapore, South Korea and Taiwan...
Slower investment growth will worsen the trade slowdown amid the uncertain outlook for growth and generally tighter financing conditions, an effect that was seen in the second half of last year.
But economies that make similar products to China stand to gain from the trade frictions in the long run, as businesses may relocate production to avoid tariffs or concentration risk.
These include Vietnam, South Korea, Thailand, Taiwan, Japan and Malaysia, which are among the most susceptible to the direct impact of slower trade flows, but are also the best positioned to benefit from positive spillovers.