These 5 market threats will knock Singapore down

Flickr photo by rrunaway

Home sales crashing 40% is just tip of the iceberg.

According to UOB Economic Treasury Report, 2012 was a year of contrasts. Despite anaemic economic growth of 1.2% in Singapore, a low unemployment rate of 1.9%, together with abundant liquidity, has supported a rally in almost all major asset classes including equities, bonds and property.

UOB-ETR expects inflation to moderate to 3.0% in 2013 from 4.7% in 2012. Domestic inflationary pressures could persist in the year ahead as transport costs rise along with a lower COE quota and an anticipated increase in bus fares.

A tight labour market and slowing immigration would also lead to wage increases.

Here are the key risk factors that could adversely impact the market according to UOB ETR:

a) Earlier or sharper-than-expected rise in interest rates. Currently, US interest rates are expected to only trend up in mid-15, in accordance with guidance from
the Fed.

b) Regulatory changes in Singapore. This could pertain to several areas, including foreign labour, gaming and property. The government’s drive to improve productivity by restricting the inflow of foreign labour could result in near-term bottlenecks and an escalation in costs. Another sector that could be affected is the gaming sector in Singapore.

c) Strong decline in Singapore property prices. We forecast residential prices to fall 5% in 2013 and transaction volume to decline 20-40%. This is after the recent property cooling measures. A sharper than expected fall in prices could have a significant impact on the banks.

d) Weaker-than-expected recovery in US’ GDP recovery. The issue of the US fiscal cliff is still not resolved and negotiations will be ongoing to decisively deal with the “sequestration” of broad spending cuts and the US sovereign debt ceiling limit which will arise again end-February.

e) Significant deterioration of euro zone debt crisis. This remains a key risk to global growth, which would have a significant impact on Singapore’s growth prospects.

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