SINGAPORE • Global economic risks may have risen but there’s no need to overreact just yet, said Singapore’s central bank chief Ravi Menon (picture). “Dark clouds are an appropriate phrase but it’s not raining yet,” Menon, MD at the Monetary Authority (MAS) of Singapore, said in an interview on Bloomberg TV on Tuesday.
“I don’t want to paint too glossy a picture on it but I don’t think we should overreact.”
Menon struck a relatively upbeat outlook for the world economy, cutting through the gloom that’s followed escalating trade tensions between the US and China, among Singapore’s largest trading partners, and a global emerging-market rout.
The International Monetary Fund (IMF) on Tuesday cut its global growth forecast for the first time in more than two years, while early indicators already show a possible slide in manufacturing.
The MAS chief said he’s taking a balanced view, pointing to still solid growth in Asia, despite an expected slowdown in China, and a US economy that’s “chugging along”.
“We’re not seeing any major collapses in growth in any part of the world,” said Menon, 54. “What is interesting I think is the underlying resilience of the global economy.”
The bulk of trade disputes that dominated the news last year have also largely subsided with the exception of the conflict between the US and China, he said.
A prolonged US-China trade war and a sharper downturn in the world economy have serious implications for export-reliant Singapore. The city state’s exports amount to 173% of GDP, and a rebound in trade last year helped to spur economic growth to 3.6%. Growth is forecast at 2.5% to 3.5% this year.
The solid growth outlook enabled the MAS to tighten monetary policy in April, as other global central banks also began doing the same. Menon declined to comment on the central bank’s policy decision due today, but just over half of the 21 economists in a Bloomberg survey predict the MAS will tighten again.
Menon’s comments helped to spur a rebound in the Singapore dollar from a 15-month low. The currency gained 0.1% to 1.3810 against the US dollar as of 3:10pm yesterday.
Global trade risks are set to dominate talks as the world’s financial elite gather in the Indonesian island of Bali this week for the IMF-World Bank’s annual fall meeting.
Menon’s sanguine outlook doesn’t mean that everything is “hunky dory”. He said a major worry is a possible slump in investment if global sentiment takes a knock.
“The bigger casualty may well not be trade but investment,” Menon said. “If corporates start feeling uneasy or uncertain about their future, they may well not make investments and that may well have a much stronger impact.”
Trade Minister Chan Chun Sing last week cautioned that the confidence in the global economy could suffer if there’s a protracted trade war. Adding to that, the IMF said a further inflaming of the conflict between the US and countries including China would accelerate capital flight from emerging markets.
Asia’s emerging economies are in better shape, with sound fundamentals and policy responses making them well-placed to avoid the financial crisis that struck the region two decades ago, Menon said.
“Emerging Asia should ride through this period of volatility,” he said.