'Manageable' risks ahead for Singapore economy: UOB

'Manageable' risks ahead for Singapore economy: UOB

Singapore - THE impact of the past two days' Chinese stock market rout on China's economy will be limited, as the country makes a transition towards a more stable and mature financial system, UOB economists have said.

And China's transition is but one of the shifts that will make an impact on Singapore's economy in the year ahead, together with oil prices and other geopolitical risks, but these will not be disrupting Singapore's growth too much, they suggested at a media briefing on Tuesday.

Jimmy Koh, the bank's head of global economics and markets research, said: "If you look at all the previous economic crises, they often come from the most unexpected corners. But if you look at all the 'known unknowns', I think it's manageable."

The unpredictability of China's economic growth and its stock market's tumultuous start to the new year have exacerbated the concerns of investors, including those in Singapore. The city state's trade-reliant economy counts China as its largest trading partner.

The Shanghai Composite index plunged 7 per cent on Monday, then closed down 0.3 per cent on Tuesday.

While there were some saying that the volatility was caused by weak manufacturing data coming out of China, Suan Teck Kin, senior economist at UOB, said that one should not read too much into it.

Instead, recent weakness in the renminbi might have caused some investors to move out of domestic equity markets into safe havens overseas.

Also, with many Chinese stocks not offering dividends, capital gains have become the primary channel for investors to make profit.

But even if these factors came together to disrupt Chinese stock markets, Mr Suan said that investors should not be too worried about the impact on the wider Chinese economy.

This is because Chinese households do not rely too much on the stock market to improve their balance sheets, compared to their American counterparts. The Chinese household invested about 15 per cent of its balance sheet in the stock market in 2014, compared to 50 per cent for American households. The proportion for Singaporean households is about 10 per cent.

Even so, China's economy is only expected to achieve, at most, a 7 per cent growth, as it continues to grapple with an ageing population, a maturing labour market and the changing structure of its financial markets. These will all have an impact on how much Singapore can look to latch onto China to drive its own economic growth.

Mr Suan told The Business Times: "Singapore won't see a lot of direct benefits from China this year. But while a 6 to 7 per cent growth for them is nothing to shout about, it is still a good number as the country transitions."

Oil prices were flagged as another risk to Singapore's growth this year, but the economists see no large changes in prices this year. UOB's senior economist Alvin Liew predicted that oil prices might hit US$30 to US$35 (S$43 to S$50)  a barrel this year.

This is because supply is still "overwhelmingly" high. Demand remains high, but technological advances are also increasing the efficiency in oil supplies and reducing consumer reliance on oil.

Other key events that might affect the economic outlook for Singapore include the threat of terrorism, possible snap elections in Japan and regional maritime disputes.

The US presidential elections later this year will also have an effect on Singapore's economy, but UOB sees it as a bright spot.

Mr Liew pointed out that in the years of presidential elections, there will be no debt negotiations or government shutdowns to talk of. "All these uncertainties will be removed in a presidential election year, and that is the positive factor for Singapore," he said.

This article was first published on January 6, 2016.
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