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Singapore Economy Grows, But Risks Persist

Singapore Economy Grows, But Risks PersistSingapore Economy Grows, But Risks Persist

Singapore’s economy grew at a faster pace in the final three months of last year than initially thought, but the government warned the outlook remained hostage to policy and protectionist risks in the United States.

That uncertainty was reflected in the affluent city state retaining its 2017 growth forecast in a wide 1.0 to 3.0% range, underscoring the small, open economy’s vulnerability to external headwinds, Reuters reported.

“If protectionist approaches become the norm, global trade will be adversely affected, with knock-on effects on economic growth worldwide,” the Ministry of Trade and Industry said in a statement accompanying revised GDP data.

The ministry’s cautious tone took some of the shine off a surge in manufacturing, which lifted economic growth to 12.3% in the fourth quarter from the previous three months on an annualized and seasonally adjusted basis, bouncing from a contraction of 0.4% in the third quarter.

That was up from the government’s initial estimate of a 9.1% expansion and compared with expectations of 12.6% growth.

Still, full-year 2016 growth of 2% was barely above the 1.9% rate clocked in 2015—the weakest since 2009, knocked by falling exports and cooling demand from major trading partner China.

The challenge for policymakers in Singapore, and other export-reliant regional economies, is how to navigate rising risks of protectionism under US President Donald Trump and an increase in funding costs as the Federal Reserve steps up the pace of rate hikes.

 “Domestic sectors will be dragged down by higher interest rates, a still weak real estate market, and subdued consumer demand,” said Trinh Nguyen, Hong-Kong based economist for Natixis.

The positive impulse in exports growth, thanks to a bounce in electronics shipments, towards the end of 2016 has seen many analysts predicting the central bank will keep its exchange-rate based policy on hold this year.

Nonetheless, the trade ministry flagged potentials risks, saying further tightening in Chinese policy could result in a sharper-than-expected slowing in growth in the world’s second-biggest economy.

Singapore’s key oil and gas sector is also struggling to recover from tumbling oil prices.

Earlier this week, Singapore’s two-biggest lenders DBS Group Holdings and OCBC both reported falls in quarterly profit and booked higher provisions for bad loans, hobbled by debt payment woes in the city-state’s oil service sector.

The manufacturing sector grew an annualized 39.8% from the previous quarter compared with a 5% contraction in the third.

 

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