Singapore central bank warns trade rows sharply increase risk to global growth


SINGAPORE • Singapore’s central bank chief warned yesterday that risks to the global growth outlook have increased significantly thanks to an intensifying international trade row and the rising prospect of a rapid acceleration in inflation.

Yet, Ravi Menon, MD of the Monetary Authority of Singapore (MAS), also said the baseline forecast for Singapore is for the economy to continue expanding and inflation to pick up gradually, adding that the MAS “does not aim to preempt tail risk (least likely) scenarios”.

“Tail risks to global growth have grown significantly over the last six months,” Menon told a news conference after the release of the central bank’s annual report.

“The world has clearly moved from trade tension to trade conflict. If this escalates into a trade war, all three engines of global growth — manufacturing, trade and investment — will stall.”

The comments came in the wake of renewed threats by the US administration against global trade partners and US President Donald Trump’s warning on Monday to take action against the World Trade Organisation (WTO).

The consequences of a full-out trade war and disruptions to the WTO process will be “quite dire”, Menon said.

“There is little question about it. The paralysis of trade flows will not stop at just trade, it will extend to investment, confidence across a range of economic activities.

“While the central prognosis for the Singapore economy this year remains intact, spillovers from global trade conflicts bear close watching,” he added.

In April, Singapore’s central bank tightened monetary policy for the first time in six years, tweaking one of three variables in its exchange-rate based model.

Menon said the MAS has started a monetary policy normalisation, but the approach to do so is incrementally in view of modest inflation and rising trade-related tail risks.

“Further adjustments to the monetary policy will depend on how the economy evolves and our updated assessments of inflation and growth prospects,” he said.

Singapore is seen as a bellwether for growth because international trade dwarfs its economy. Exports, for instance, equate to about 200% of its gross domestic product (GDP).

Overall, Singapore’s GDP growth is expected to come in at around 2.5%- 3.5% in 2018, the MAS said, adding that the outlook remains positive overall.

Analysts are split over whether April’s move is the start of a longerterm tightening of monetary policy. The MAS’ next scheduled policy statement is in October.

Menon said the property market has seen a resurgence in prices and transactions over the past year. “The recovery in the property market is welcome, but it should not decouple from economic fundamentals.”

Prices in Singapore’s private home market rose for the first time in four years in 2017, though it was a modest 1.1%.