Singapore Country Risk Report Q1 2020

Singapore Country Risk Report Q1 2020

We have revised our 2019 real GDP growth forecast to 0.5% and maintained our 2020 growth forecast at 1.7%. The manufacturing sector will continue to under-perform the rest of the economy due to the likely persistence of external headwinds stemming from elevated US-China trade barriers. Investment and services are likely to benefit from policy support, low base effects and to some extent, the unrest in Hong Kong, providing the basis for a slight growth recovery in 2020.

We expect the Monetary Authority of Singapore (MAS) to keep its dovish stance in the foreseeable future and to ease policy further in 2020. Economic growth is likely to remain slow in 2020, due to stiff headwinds facing the exporting sector, which will encourage the central bank to guide the Singapore dollar weaker to provide support to the economy. We also expect benign inflation over the coming months due to a softer oil price and economic outlook, underpinning MAS's easing stance.

We now expect the primary budget deficit to come in at 1.2% and 2.2% of GDP in 2019 and 2020, respectively, widening from 1.1% and 1.2% previously. The chief reason for these revisions is the negative impact of the slowing economy on revenues. The government is also likely to carry out fiscal stimulus over the coming quarters to support the economy, which would see a larger increase in expenditure than in better years. Plans for further revenue expansion, including a GST hike, signal the government's continued commitment to fiscal responsibility, while ample fiscal reserves place it in a strong position to fiscally stimulate the economy.

We expect the slowing economy to place downside pressure on the Singapore dollar through 2020. The Singapore dollar is on track to meet our 2019 average forecast of SGD1.3650/USD, and we therefore maintain it. However, we have revised our 2020 average forecast to SGD1.3750/USD from SGD1.3500/USD previously to reflect the external challenges faced by the island-nation that should keep the Monetary Authority of Singapore on an easing path. 2021 presents better prospects for a more lasting and comprehensive resolution to the US-China trade war in our view, which bodes well for the economy and, therefore, the Singapore dollar. We thus maintain our average forecast at SGD1.3600/USD in 2021.

We now expect the next general election to be called in H120, following the formation of the Electoral Boundaries Review Committee in September, with past occurrences having preceded elections by a few months. We see little chance of the ruling People's Action Party losing power, but winning a high vote share remains vital to establishing the credibility and legitimacy of the incoming fourth generation of leaders. Key figures of the Workers' Party have recently lost a civil lawsuit concerning their mismanagement of public monies, which is likely to dampen their prospects at the coming polls. The opposition as a whole is likely to remain weak and fragmented and is unlikely to mount a credible challenge of the kind put up by the Pakatan Harapan coalition marshalled by Mahathir Mohamad in Malaysia in 2018.

Major Forecast Changes

We have revised our real GDP growth forecast to 0.5% in 2019, down from 0.9% previously.

We now expect the primary budget deficit to come in at 1.2% and 2.2% of GDP in 2019 and 2020, respectively, widening from 1.1% and 1.2% previously.

We have revised our 2020 average currency forecast to SGD1.3750/USD from SGD1.3500/USD previously.

Key Risks

The risk of a technical recession has risen in Singapore after two quarters of sluggish economic growth and which could be precipitated by a more pronounced Chinese economic slowdown amid the US-China trade war.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Technical Recession Unlikely, Slight Recovery In 2020
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: TOP 5 GOODS EXPORTS
TABLE: TOP 5 GOODS IMPORTS
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
Monetary Policy
Monetary Easing To Continue Throughout 2020
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Wider Deficits As Singapore Poised For Fiscal Stimulus
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE SOURCES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
The Singaporean Economy To 2028
Currency Forecast
Singapore Dollar To Weaken Further In 2020 Amid Economic Slowdown
TABLE: CURRENCY FORECAST
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Singapore Country Risk Q1 2020Contents10-Year Forecast
Solid Growth Trajectory To 2028
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Likely H120 Elections To See PAP Remain Singapore Government
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Political Liberalisation Likely To Be Slow Over Next Decade
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE AGREEMENTS
TABLE: FREE TRADE ZONE AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Manufacturing Weakness And Rising Political Risk To Weigh On Growth
TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
TABLE: DEVELOPED MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: SINGAPORE – MACROECONOMIC DATA AND FORECASTS

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