Its high dependency on international trade and integration in the Asian supply chain puts it at risk.
Due to its high dependency on international trade, Singapore is highly susceptible to global protectionism and a hard landing of the Chinese economy, according to insurance firm Atradius’ 2019 Singapore country report. The report’s authors noted that Singapore can expect lower growth in 2019 and 2020, but strong fundamentals will remain.
“Singapore’s income per capita and level of development meet OECD standards. This city state is the main transport and financial services hub for Southeast Asia, but its economy is somewhat vulnerable because of its high reliance on demand from its trading partners and the focus on specific sectors such as electronics and pharmaceuticals,” they noted.
In 2018 Singapore’s economy benefited from robust growth in global trade. Exports and industrial production recorded increased more than 4% and 7% respectively, whilst private consumption remained strong. However, economic expansion is likely to moderate in 2019 and 2020, as both global trade growth and Chinese import demand have cooled down.
“Any destabilising effect should be limited due to Singapore's economic resilience. The city state continues to be one of the strongest countries in the world in terms of sovereign risk and macroeconomic fundamentals,” they said. “Therefore, and due to the ample foreign exchange reserves and adequate monetary management of the Monetary Authority of Singapore (MAS), the exchange rate is unlikely to be affected by changing patterns of international investment.
Nevertheless, for a small state, the economy is relatively well diversified. Singapore’s banking sector is also healthy and adequately supervised.
Atradius also noted how the city state’s long-term growth strategy to move away from being just a trade, transport and financial hub and become a centre of high-tech industry has started to bear fruit in the bio-medical sector, and the government has begun to extensively promote business digitalisation.
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