IMF cuts Singapore growth forecast

The International Monetary Fund has cut its 2019 growth forecast for Singapore to 2 per cent from 2.3 per cent as Donald Trump’s trade war hits exports. 

Singapore’s economy expanded by only 0.1 per cent in the second quarter, its slowest annual pace since the financial crisis, raising the chances of a recession and monetary policy easing.

Singapore’s financial system was resilient, “underpinned by a strong regulatory and supervisory framework”, the US-based institution said. It said liquidity stress tests revealed vulnerability in US dollar liquidity and the IMF encouraged giving priority to strengthening banks’ foreign exchange liquidity. 

Singapore is the world’s third-largest trading centre for foreign exchange after New York and London. The IMF said the city-state’s commercial banks hold around S$2.6 trillion (US$1.92 trillion) in assets, or about 570 per cent of GDP, while asset management firms handle around S$3.3 trillion.

The IMF supported the Lion City’s “broadly neutral monetary policy stance” and recommended it remained “data-dependent”. 

“Given global trade tensions, support from external sectors is expected to fall and growth drivers are projected to shift back to domestic demand,” the IMF reported. 

“Risks to the outlook are tilted to the downside and mainly stem from external sources, including a tightening of global financial conditions, escalation of sustained trade tensions, and deceleration of global growth.”

Singaporean growth should stabilise around 2.5 per cent over the medium term, the IMF estimated. 

It praised Singapore’s use of macro-prudential and other measures in the city-state’s property market. It suggested “eliminating residency-based differentiation for the Additional Buyer’s Stamp Duty, and then phasing out the measure once systemic risks dissipate”. 

The IMF said GDP per capita had more than doubled in the last 20 years while income inequality had declined since the global financial crisis.

The government could afford to spend more on infrastructure and address the issues of an ageing population and climate change, the IMF opined. 

As in many previous reports on Singapore, the IMF pointed to the huge current account surpluses and called for greater use of fiscal policy for more balanced growth.

“The external position in 2018 was substantially stronger than what is consistent with fundamentals and desirable policies,” it said.

In response to the IMF report, the Monetary Authority of Singapore said it was reviewing the IMF’s recommendations and would take steps to boost financial oversight. 

Singapore’s central bank forecast growth this year to be between 1.5 per cent and 2.5 per cent, compared to 3.2 per cent last year. 



Singapore’s growth depends on the health of the international economy. Picture credit: Flickr