Asia Economy

Singapore braces for tougher times as China slows down and the trade war heats up

Why is Singapore so rich?
Why is Singapore so rich?
Key Points
  • Singapore's export-driven economy would likely be hurt by the tariff fight between the U.S. and China, the city-state's central bank warned in October.
  • Taimur Baig, chief economist of Singapore lender DBS, said that Singapore has some "shock absorbers" that help shield the country from global turbulence.

Singapore, a country with a population of just about 5.6 million, is one of Asia' top financial centers and a global trading hub.

It has for decades been one of the world's most impressive growth stories. The Southeast Asian nation is among the top 10 countries in the world with the highest GDP per capita, according to World Bank statistics.

However, the country's central bank warned late last year that its export-driven economy would likely be hurt in the coming months by the ongoing U.S.-China tariff fight.

Singapore is currently the biggest foreign investor in China. Asia's largest economy, meanwhile, is also Singapore's biggest export market. But, as Beijing braces for a continuation of its current slowdown, the Southeast Asian city-state may have to prepare for more challenges.

In January, Singapore reported that its economy grew 3.3 percent in 2018 — slower than the 3.6 percent recorded the year before. It also emerged last week that the country's exports fell by 8.5 percent from last year, making it the worst decline in more than two years.

That export figure was unexpected, and widely missing the 1.5 percent increase predicted by economists in a Reuters poll.

Economic foundations

Still, experts said that Singapore was likely to weather the coming trade storm because of its solid economic foundations.

Taimur Baig, chief economist of Singapore-based bank DBS, highlighted the country's strength on a real GDP per capita basis. On that metric, Singapore beats highly developed countries like Germany and Sweden.

Singapore's strong economic position is "an outcome five decades in the making," he explained, noting policies like its infrastructure investment as well as its national housing program.

Meanwhile, Steve Cochrane, chief Asia Pacific economist at Moody's Analytics, said the island enjoys "prosperity" because it has been able to boost both its labor force and productivity.

Singapore also has some "shock absorbers" that help to shield from global turbulence, according to Baig.

Some of these include the country's large pool of national savings and room for policymakers to deal with sudden changes in demand. These factors allow Singapore to deal with swings in the global cycle and still maintain its wealth, he added.

Singapore is also angling for a sizable share of the advanced technology marketplace, pushing efforts to develop high-tech systems and manufacturing in the city-state. Song Seng Wun, an economist with Malaysian bank CIMB, noted that such moves highlight the country's need to be an attractive place for global businesses, pointing to British firm Dyson's decision to build their electric cars in Singapore.

Ultimately, though, Singapore's fate remains tied to the region as a whole. That is, Cochrane said, it will benefit if its Asian neighbors see economic success.

"Singapore wants that to happen — the more prosperous the region is, the better opportunities it creates in terms of travel, investment and consumer spending across the region," he said.