Singapore under threat from capital outflows, mounting ASEAN woes

Profit margins will be squeezed as growth slows.

Singapore’s external-facing economy is at risk from the broad-based growth slowdown in the region, coupled with the looming threat of capital outflows as jittery investors ditch Asian equities.

The Monetary Authority of Singapore (MAS) said that while the economy is still on track to grow modestly this year, local companies will continue to be at risk from escalating external and domestic headwinds.

For instance, transitional drags in China from ongoing reforms and persistent weakness in residential construction activity could weigh on prospects in the region, while recent volatility in the Chinese stock and currency markets may also dampen investor and business sentiments in the near term.

On the domestic front, there are challenges as restructuring continues. Notably, companies will face continued margin pressures amid the tight labour market environment.

“At the same time, the synchronised slowdown in China and the ASEAN economies could weigh on demand for external-facing services, such as merchanting trade, transport & storage and accommodation & food services,” the MAS said.

Subdued growth prospects in the region may also dampen growth in offshore lending in the near term, while the transport engineering segment continues to be buffeted by the downshift in global oil exploration activities amid sustained weakness in oil prices. 

“The Singapore economy is on track to grow at a modest pace in 2015. Global growth prospects remain uneven, with the recovery in the G3 providing some support to Singapore’s external-oriented sectors. However, the latter’s expansion could be capped by ongoing reconfigurations in the electronics industry. In comparison, the domestic-oriented sectors, especially those with firm underlying demand, such as healthcare and education, should stay broadly resilient,” the MAS said.
 

The MAS expects the economy to grow by 2-2.5% this year.