Singapore’s Economy Feeling The Effects Of The US-China Trade War

Singapore stares at a gloomy economic outlook in the third quarter as the Southeast Asia country continues to feel the effects of the ongoing US-China trade war. Various sectors of the economy are already feeling the impact of the trade tensions, especially exports and the industrial and retail property markets.

Perhaps the most affected sector is manufacturing and exports. This is ss a result of slowing growth in the economy of China, which is the largest market of Singapore. The economy has been tipped to enter recession in the near term as the effects of the trade war continue to rock. In the second quarter, the economy reported a decline in the growth of the economy by 3.3%.

 

Impact of the trade war on Exports

The decline in exports has been heightened by the impact of the trade war on demand from the world’s second-largest economy. Most economists have warned that the trade dispute will continue to be felt and will hurt the country’s trade-dependent economy. Last year in November, Singapore saw a 2.6% drop in the country’s non-oil domestic exports relative to the 1.2% increase that economists had predicted. This was a sharp decline from the reviewed 8.2% increase in October. It was the first time the country saw a decline in growth since the first quarter of 2018.

The sharp decline in export growth is a result of slowing trade trend in china. Besides the decline in growth of non-oil exports, growth in volatile pharmaceuticals equally slowed down significantly. Oxford Economist Sian Fenner indicated that although exports to the US from Singapore remained steady on the other hand exports to China declined. China accounts for a greater percentage of Singapore’s export, and the waning import demand in China is impacting overall economic growth. The trade war has increased trade protectionism. This, coupled with waning import demand in China, will weigh on Singapore’s exports as well as GDP growth this year.

Trade to China has declined in recent months, especially as a result of the tariffs wars with the US. The Chinese economy has slowed, which is the reason imports to the country have slowed. If you consider retail sales in the country, you will realize that macro fundamentals have also slowed. Singapore relies on trade and the majority of its exports are to China. Therefore as the trade war continues to eat in China, it is also having ripple effects on Singapore and other Southeast Asia countries.

 

Property markets are also slowing in growth

The deteriorating trade relationship between the US and China has also affected the property markets in Singapore. This has in the process muted the possibility of an economic recovery. According to the head of research at Collier International, Tricia Song, there is a slowing in economic growth in Singapore. In the near term, industrial and retail property markets are expected to feel the heat. If the pace of growth continues, then that will affect consumer confidence. Industrial property markets are also expected to be affected as developers will shelve any expansion plans.

In the past six months, retail rents in Singapore have remained relatively weak. The retail rental index in the central region has dropped by 1.7% from last year. Colliers indicates that rental drops have slowed since last year with the large retail completions expected to taper off from next year. With headwinds prevailing in the retail property market following the slowing of the economy, consumer sentiment may be impacted. This will, in turn, damage the possibility of retail rents recovery.

Colliers International indicates that the industrial property market was somehow finding its footing with rents bottoming out. However, as the trade war with China continues, manufacturing and trade have slowed down, thus putting industrial occupancy and rents under the spotlight. Singapore expects leasing demand for industrial properties to slow down between this year and 201 because of weakening trade. Colliers has estimated the annual absorption up to 2023 to be around 8.6 million square feet, which are 25% less the historical 10-year average.

According to Colliers international industrial services senior director, industrialists are already cautious regarding expansion plans, renewals, and space requirements. For now, most of them prefer to observe the current situation. They are also keen on the US-China war and how it will affect their businesses.

 

Singapore’s economic outlook

Economists have tipped the economy of Singapore to enter recession in the next three months as the effects of the US-China trade war continue to be felt. On Tuesday, the gross domestic product figure reported indicated that there was a 3.8% decline in growth in the first quarter of 2019. This was the worst quarter in GDP growth the country has reported in the last seven years. The country reported a slow rate of growth in the first quarter of around 0.1% down from 1.1% in 2018. This is the slowest growth rate that Singapore has registered since the cash crunch of 2008.

The most affected sectors in growth were retail and wholesale trade, which dropped 3.2% and the manufacturing sector that shrunk by 3.1%. Singapore’s Trade and Industry Ministry has indicated that the economic downturn is partly a result of the ongoing trade dispute between China and the US. In the second quarter, China reported a 6.2% growth, which is its lowest on record synonymous to the economic slump in Singapore. The ministry indicates that a larger than expected decline in economic growth in China as a result of US tariffs could lead to a drop in imports in China, which will negatively impact on Singapore’s growth.

According to Carlos Casanova, an economist at Coface, Singapore is an indicator for the slowing economic growth globally. Therefore what is being witnessed in Singapore is that the economy will experience a recession in the third quarter of 2019. Singapore has experienced a decline in imports and exports in the past few months. For instance, exports decline by 17.3% in June, which is the worst in six years.

(By Neha Gupta)

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