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Singapore warns global economy at risk from trade battle

Singapore warns global economy at risk from trade battle

Singapore's Trade and Industry Minister, Chan Chun Sing, has warned the rest of the world that a protracted China-US trade war could have a severe impact on the economy

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By Jay Banerjee 08.10.2018

Singapore’s Trade and Industry Minister, Chan Chun Sing, has warned the rest of the world that a protracted China-US trade war could have a severe impact on the economy, drag down confidence and end any potential short- to medium-term gains for countries in emerging Asia.

Speaking over the weekend, Chan admitted that Southeast Asia has seen benefits from enterprises looking elsewhere to escape trade headwinds as the battle between the world’s two biggest economies ramps up but warned that a prolonged standoff could be disastrous for the global economy.

“In the medium term, some countries benefit, and some countries lose," Chan revealed in a Bloomberg Television interview. "What is more worrying for everyone is that the entire global economy loses confidence."

While the outlook is decidedly cloudy, Chan said that the long-term situation is not yet set in stone, as the “worst-case scenario” is yet to play out. However, with both the US and China continuing with tit-for-tat tariff policies and one-upmanship, this scenario edges closer to becoming a reality with every passing week.

A loss of confidence in the global economy is arguably the greatest concern moving forward, as this would have a detrimental impact on financial markets and slow down economic activity. Chan added: “Then, I think it will impact everyone negatively."

Singapore is watching developments closely since exports amounted to almost double its gross domestic product in 2017, and both the US and China are among its five biggest trading partners. Singapore has a small and open economy that is especially vulnerable to any spillover from tariffs and potential changes to global supply chains.

The global economy was already facing a cyclical downturn before the trade war began in the summer, so any slump in sentiment stemming from the conflict could worsen the outlook in the next few years. Chan added: "If that coincides with what many people are expecting in terms of a global downturn because of the technicalities, then I think we will be in for a rough ride."

Recent manufacturing surveys have offered little comfort. Sentiment has soured in China due to weaker activity as the US-China conflict passes the three-month mark. Singapore’s Purchasing Managers’ Index also declined to levels not seen since late 2016.

Ministers in emerging Asia have often spoken of the robust economic fundamentals that will allow countries in the region to flourish despite mounting pressures, and Chan said that Singapore is “still all right.” He believes that fluctuations in data are normal, but there is a concern that souring sentiment could lead to “longer-term structural shifts.”

Singapore is coping well for now and is set to close the year with 3.2% economic expansion, according to the latest forecasts. This is slightly down on the 3.6% figure recorded last year.

The latest trade warnings come ahead of the International Monetary Fund and World Bank’s annual meeting in Bali this week. JPMorgan Chase & Co expects the trade battle to continue, with the US likely to introduce tariffs on all Chinese imports. Bank of America Merrill Lynch believes that this will slow China’s economy, while the rest of Asia will have to deal with the impact of spillover.

Chan admitted that the risks are growing in severity but said that Singapore will work hard domestically to ensure that the economy is strong while remaining steadfast in its commitment to keeping the global trading system open. He concluded: “We need to work with like-minded partners to uphold the global trading system, to continue to have the free trade agreements either bilaterally or multilaterally, to make sure that the global trading system remains open, free and rules-based.”

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