Tight fiscal policies drag Singapore growth in 2H14: HSBC

The strong currency isn’t helping.

Bleak prospects are ahead for Singapore’s export-dominated economy in 2H14. The country’s already lacklustre economic growth will be further bogged down by tight monetary policies and the strong Singapore dollar.

According to HSBC's Asia Equity Insights Quarterly, the slower-than-expected recovery in the US economy is the major reason why they remain neutral on Singapore, the market with the highest correlation with US growth.

“Further, monetary policy is expected to remain tight and a strong currency is likely to be a negative for an economy dominated by exports. HSBC economist Joseph Incalcaterra expects GDP growth of 3.6% in 2014, below consensus expectations of 3.8%. PMI numbers have remained relatively soft and trade data have
remained lacklustre in recent months. He feels that with a tight labour market, core inflation should remain a concern as firms pass on cost increases to customers,” noted the report .

Here’s more from HSBC:

Having said that, we still like the long-term story of this low-beta, high-yield market. It offers one of the highest yields (3.7%) in the region, is relatively unloved, and should benefit from productivity growth initiatives by the government in the long term.

While the property market continues to cool, the recent uptick in manufacturing and construction activities is positive for the country, and should support gradual recovery in growth.