Singapore’s central bank has issued a cautionary outlook, warning that the ongoing global trade war could exacerbate risks to both economic growth and inflation in the city-state. In a macroeconomic review released on Monday, the Monetary Authority of Singapore (MAS) highlighted that the initial phase of tariffs already affects 60% of the country’s exports to the United States.
The MAS reported that the growth outlook has become “more cautious” as higher US tariffs are expected to put pressure on exporters’ margins, reduce production, and dampen domestic incomes. The central bank also noted that significant uncertainty surrounds the future of trade policies, with the potential for prolonged trade conflicts to further harm Singapore’s growth prospects.
“Prolonged trade conflicts could pose further downside risks to growth, and thus inflation,” the report stated. However, the MAS also suggested that the trade tensions might eventually ease, which could help boost sentiment and invigorate export activity.
One notable consequence of the trade war could be increased disinflationary pressures in Singapore. Weaker global demand is expected to weigh on commodity and manufactured goods prices, with some US-bound exports potentially rerouted to alternative markets, including Singapore. This shift could raise the domestic supply of goods, thus lowering prices.
The central bank also pointed to the risks of inflation being tilted to the downside. The report suggested that the disinflationary effects of global tariffs could intensify if the negative demand impacts are larger or more prolonged than expected.
Singapore’s core inflation rate has been on a downward trajectory since October, reaching a four-year low last month. The cooling inflation could provide the MAS with more room to consider further monetary easing, following its recent adjustments to the policy band in January and April.
To mitigate the effects of the US tariffs, the Singapore government has been collaborating with businesses and unions. According to the MAS, approximately 55% of Singapore’s exports to the US are currently subject to the baseline 10% tariff, while an additional 5% of exports are impacted by levies on steel, aluminum, automobiles, and parts. Furthermore, Singapore’s economy could face an indirect impact due to its value-added trade with other nations, such as China and Vietnam, which are facing even higher tariffs.
In a move to stay responsive to evolving global challenges, the MAS also announced that it would shift its policy review schedule from biannual to quarterly reports, starting in 2023. This change reflects the need for timely decision-making amid ongoing uncertainties in global trade dynamics.
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