Singapore economy could bounce back in 2020: Fitch Solutions

Hong Kong’s problems could just be Singapore’s lifelines.

Singapore’s economic growth may pick up in 2020, driven by the likelihood of continued monetary easing and the possible diversion of economic activity away from Hong Kong to Singapore, Fitch Solutions reported.

The research firm maintained Singapore’s 2020 GDP growth forecast at 1.7% although they revised down their 2019 real GDP growth forecast to 0.5% after the second consecutive quarter with no expansion.

Also read: GDP growth may hit 0.5% in 2019: report

“Low base effects, especially in gross fixed capital formation, the likelihood of continued monetary easing, as well as the possible diversion of economic activity away from Hong Kong to Singapore, make a case for a slight growth pick-up in 2020,” reported Fitch Solutions.

The manufacturing sector was the main drag on Q3 growth, subtracting 0.7 percentage points (ppt) from headline growth, following a 0.6 ppt subtraction in Q2. Despite the dismal outlook for the manufacturing sector, Fitch Solutions believes that the likelihood of Singapore slipping into technical recession is low at the moment as investment growth is likely to continue stabilising over the coming quarters.

Also read: Singapore could come off worse than regional neighbours in next global downturn

In addition, the Monetary Authority of Singapore (MAS) is expected to continue to ease policy in a bid to support investment and exports. This follows the latest decision by the central bank on 14 October to ease the slope of the nominal effective exchange rate, reducing the rate of appreciation of the undisclosed policy band. Interest rates are expected to decrease over the coming months, which in turn would be supportive of investment.

The services sector may also benefit from the projected rise of mainland Chinese tourists and economic activity away from Hong Kong.

“Hong Kong was, until the unrest broke out, the most popular destination for Mainland Chinese tourists, hosting nearly a third of all outbound Chinese in the three years between 2015 and 2018. In our view, Singapore is the closest substitute for travelers seeking a holiday in Hong Kong and the city stands to benefit from a potential increase in Mainland Chinese tourists over the coming months. That Beijing has restricted the issuance of visas for Mainland Chinese to visit Taiwan reinforces this point,” noted Fitch Solutions.