This chart spells trouble for Singapore firms

It’s indicative of a downturn when the credit boom ends.

With Singapore’s weak growth outlook, analysts are predicting that outstanding debt obligations will become increasingly challenging to service.

According to a report by BMI Research, this rings particularly true at a time when liquidity is tightening and interest rates are climbing, due partially to the US Federal Reserve’s pledge to normalise its monetary policy and MAS consequently importing its interest rate regime from the Fed.

Meanwhile, the total stock of corporate and household debt relative to GDP has spiked dramatically over the past eight years in Singapore. Total debt of non-financial organisations reached 84.2% of GDP in the second quarter of 2015, which is a new historical high.

BMI Research also asserted that Singaporean household balance sheets are stable, as financial assets have also leapt significantly during this period. Also, a sizeable proportion of the debt is collateralised by assets in which there is considerable equity, like mortgages.

However, such a quick hike in corporate debt is generally indicative of a downturn in those firms’ ability to repay those obligations when the credit boom ends. Moreover, the rapid rise is at the very least likely to herald a slowdown in capital expenditure as those firms channel funds towards debt servicing.