Singapore’s economy is “ultra-open and highly leveraged,” and that makes it susceptible to rising trade protectionism and tighter financial conditions as global interest rates rise, Nomura said in a note on Friday.
“For ultra-open Singapore, a significant step-up in U.S. trade protectionism or a sharper-than-expected economic slowdown in China will likely be highly negative, affecting its manufacturing and services sectors,” Nomura said. “A significant proportion of exports to China are in
the form of intermediate goods which are then assembled into finished goods and exported to the U.S.; we estimate Singapore’s ultimate goods export exposure to the U.S. amounts to 9 percent of Singapore’s GDP, about half of which is in electronics products. Another
6 percent is exposed to Chinese final domestic demand.”
Nomura noted that Singapore’s domestic economy was still “fairly fragile,” as well as highly leveraged, with household debt high at 72 percent of gross domestic product, while corporate debt had climbed to 158 percent from 120 percent in 2012.
“A faster-than-expected rise in U.S. rates could push Singapore’s domestic interest rates higher,” which could be “especially problematic” in the construction, building and financial sectors,” Nomura said.
But Nomura did note that Singapore has flexibility to respond, possibly by unwinding macroprudential measures on the property market and household debt, or taking a more expansionary fiscal policy, or by using accumulated fiscal reserves.