October 26, 2018 / 4:16 AM / a month ago

Trade war to drag on Singapore economy, central bank says

SINGAPORE (Reuters) - Singapore’s central bank warned on Friday that an intensifying trade row between China and the United States is likely to hurt the city-state’s economy in coming months, though it said the domestic growth impact of the dispute has so far been minimal.

A view of the Monetary Authority of Singapore's headquarters in Singapore June 28, 2017. REUTERS/Darren Whiteside/File Photo

The tiny Southeast Asian state, a global trading hub and financial center, is seen as a bellwether for the global economy because its exports equate to around 200 percent of its output.

Since the start of the year its politicians and policymakers have been warning of blowback from a tariff dispute between two of Singapore’s top trade partners.

Washington has imposed tariffs on $250 billion of Chinese goods - the latest round coming last month - knocking China’s growth rates to their slowest in almost a decade.

“The trade frictions have had a limited impact on the Singapore economy thus far, but the negative spillovers could become more discernible in the latter part of this year and beyond,” the Monetary Authority of Singapore said in its semiannual macroeconomic review.

“These could pose some downside risks to growth in the quarters ahead.”

MAS forecasts GDP growth should come in the upper half of its 2.5–3.5% range for 2018 and moderate slightly in 2019.

The electronics segment - a backbone of Singapore’s manufacturing sector - is one area of concern because of its links with China in the global supply chain, the central bank said.

Another industry that might feel the heat is transportation, it added. Singapore has one of the world’s busiest ports - connecting the west with Asia.

Yet there might be a silver lining.

The central bank’s report pointed to data showing Southeast Asia, and in particular Vietnam, as the top destination for U.S. businesses in China that have either moved or are considering moving due to trade tensions.

“The relocation of production to Southeast Asia, if sustained, could yield some positive spillovers, at the margin, to Singapore,” the central bank said.

“In particular, trade-related services such as wholesale trade and transportation and storage could benefit due to Singapore’s hub status.”

Despite the risks to growth from trade tensions, Singapore has tightened monetary policy at both of its semiannual meetings in April and earlier this month.

It said its latest tightening was driven by solid domestic indicators, including improving labor market conditions, core inflation approaching 2 percent, and an economy running slightly above potential.

“The monetary policy stance was carefully calibrated against the backdrop of persistent uncertainties in the external environment, and it is in step with the steady evolution of real and nominal economic variables.”

Reporting by John Geddie; Editing by Shri Navaratnam

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