Another global ratings agency has lowered Singapore's economic growth forecasts for this year owing to abysmal trade data and fears about China's market stability.
Standard & Poor's (S&P) Ratings Services revised down its 2015 gross domestic product (GDP) growth forecast from 3 per cent to 2.4 per cent, it announced yesterday. Its tip for 2016 was lowered as well, from 3.3 per cent to 2.8 per cent.
The S&P downgrade, which was extended to the other "tiger" economies in the Asia-Pacific, followed similar revisions by ratings agency Moody's and DBS Bank.
Both have slashed their 2015 forecasts to below 2 per cent, citing stock market turbulence and China's economic slowdown.
"The tiger economies of Asia (Hong Kong, Singapore, South Korea, and Taiwan) have taken a major hit from slow export growth," Mr Paul Gruenwald, S&P's Asia-Pacific chief economist, said. This is despite the positive impact of lower oil prices, "which appears to have been banked rather than spent".
He added: "In a break from the past, these economies may not be the leading beneficiaries of a US recovery. We have lowered their GDP growth further for 2015-2017, and the risks to growth and inflation remain on the downside."
While the tiger economies will gain somewhat from the US recovery, the benefits may not be as strong as before due in part to "US manufacturers on-shoring some final goods production (formerly imports), while China appears to be on-shoring intermediate goods production (formerly imports)", S&P Asia economist Vincent Conti told The Straits Times. This will mean lower demand for exports, he said.
"The tiger economies have suffered repeatedly in the post-global financial crisis period as trade growth has continually disappointed," S&P said.
That is troubling, given the region's "relatively high dependency on external demand for growth".
Volatility has also heightened over concerns about the pace of China's slowdown and the financial market contagion generated through its recent stock market rout and moves to liberalise its exchange rate regime.
"That China needed to slow was never in doubt," S&P said. "Short of a miraculous rebound in productivity or... global trade growth, China's economic activity needed to slow to put it on a more sustainable path and to allow past excessive investment and lending to be digested in a reasonably orderly manner."
But not all risks are rising, S&P said. It sees the possibility of the United States Federal Reserve postponing its initial rate hike to December, and the risk of market volatility and slower spending in the region pushed back for now.
Further, with lower GDP growth and higher risk aversion in the region, S&P said it does not foresee any rate rises here until the second half of next year.