Singapore’s second quarter advance GDP estimates might possibly surprise on the upside due to the sharp rise in FX market turnover and significantly stronger than anticipated May’s NODX data, noted ANZ in a research report. Market projects the second quarter advance GDP to peg at 2.2 percent. In the first quarter, Singapore’s economy had grown 1.8 percent.
But, these dynamics are not expected to sustain, noted ANZ. The surge in May’s NODX data was distorted by a sharp increase in gold exports that grew almost five times. On the contrary, tech exports weakened in May, with Singapore not gaining from the regional mini tech upswing that has sustained both Taiwan and South Korea exports.
Moreover, the underlying trend in domestic activity continues to be subdued. The subdued foreign demand is being a drag on domestic corporate activity, especially given the increased number of business closures. This signals at more sinister dynamics than just a cyclical soft path, according to ANZ.
Therefore, problems in labor are expected to continue. The labor market is deteriorating and additional rises in joblessness are inevitable. A drop in corporates’ compensated hours implies that economic activity has faded. Singapore’s economy faces downside risks from Brexit through financial mareky and real activity channels, added ANZ.
The direct effect of trade on Singapore from Brexit is expected to be modest. The country ships just 0.9 percent of its total exports to the UK. However, the indirect effect through the EU would be considerable. The remainder of the EU is a huge source of foreign demand for Singapore’s exports.
The Singapore’s exports are likely to be dragged on by the uncertainty of the EU and the UK relationship. This is expected to extend to trade recession in the country. Moreover, a stronger Singaporean dollar is a risk on the downside to exports.
Meanwhile, through the financial market channel, the volatility in FX continues to be properly managed by the central bank. But, Singapore’s place as a vital intermediary of capital flows from developed economies to Asia makes the financial sector vulnerable, due to direct dependence on foreign liquidity or because of intermediation of flows, added ANZ.
The fading momentum in domestic activity and the weakness in foreign demand can by offset by policy support that requires stepping up and widening from exchange rate easing to fiscal support, according to ANZ.
The material has been provided by InstaForex Company – www.instaforex.com