Singapore economy 'to stay sluggish in months ahead'

Weak oil prices a drag on earnings recovery, export demand expected to fall: Credit Suisse

Export demand is expected to deteriorate as well, which will hit the Singapore dollar, according to Credit Suisse's mid-year prognosis. PHOTO: AGENCE FRANCE-PRESSE

Despite renewed momentum in the property sector and signs that the earnings downgrade cycle has bottomed out, Singapore's economy is likely to be sluggish in the coming months in line with prospects for the world as a whole, said banking group Credit Suisse.

This comes amid weak oil prices and a competitive telecommunications sector, which are holding back earnings recovery. Meanwhile, export demand is expected to deteriorate as well, which will hit the Singapore dollar, according to Credit Suisse's mid-year prognosis.

"Manufacturing companies would be most affected by (the drop in export demand). Beyond that, I think that if you look at domestic sectors - retail, auto - it's been quite weak already," said Credit Suisse's Asia-Pacific investment strategist for equities Suresh Tantia.

He added: "I don't think we will see much more impact on domestic sectors. It's mostly in the export-oriented sector that we'll see the impact."

Prospects of more interest rate rises in the United States are also expected to weigh on the Singdollar, which Credit Suisse believes is likely to weaken against the greenback.

Rates are tipped to go up at least one more time this year and three times each next year and in 2019.

The US dollar is expected to do well against the euro amid subdued inflation there and a cautious European Central Bank.

The yen still remains "the best vehicle" to hedge against global risks and any surprise interest rate moves in the US, Credit Suisse added.

The bank has a neutral view on global equities, as the strong economic momentum from the start of the year has generally been priced in and valuations have become expensive.

It noted that flatter economic momentum and higher US interest rates suggest that "equities are likely to move sideways from here".

It is also taking a neutral view on equities in mainland China, where it expects the market to remain range-bound in the near term, as policymakers focus on active management of financial markets.

Credit Suisse's view is similarly neutral for equities in Hong Kong, where growth is weak and flows from the mainland are forecast to taper off as speculators expect short-term strength in the yuan.

The MCSI inclusion of China A-shares, which was announced last week, is not expected to have an impact in China as the implied fund flows are too small, said Credit Suisse.

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A version of this article appeared in the print edition of The Straits Times on June 27, 2017, with the headline Singapore economy 'to stay sluggish in months ahead'. Subscribe