OCBC: Singapore government likely to offer targeted fiscal help amid economic slowdown

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Singapore’s government is likely to meet slowing economic growth with targeted fiscal help for businesses, especially small-to-medium enterprises (SMEs) and workers, Selina Ling, head of treasury research and strategy at OCBC Bank, said in a note Tuesday.

“Given that the current growth slowdown is concentrated mainly in manufacturing, especially electronics, and wholesale and retail trade, any fiscal assistance is unlikely to be broad-based at this juncture,” Ling said, noting Budget 2020 is due in six months.

“That said, watch for any signs of softening in the labor market conditions for the quarters ahead, albeit any deterioration is likely to be gradual rather than kneejerk,” she added.

She noted layoffs, or retrenchments, may not jump as the dependency ratio ceiling — or the ratio of foreign workers who can be hired based on the number of local workers — is set to fall for the services sector. The services-sector DRC will be lowered to 38 percent from the start of 2020 and 35 percent from the start of 2021, from 40 percent previously, the Ministry of Manpower has said.

Earlier Tuesday, the Ministry of Trade and Industry (MTI) said it cut its economic growth forecast for Singapore to 0.0 percent to 1.0 percent for 2019, as the global outlook has continued to weaken amid the escalation of the U.S.-China trade war. For the second quarter, Singapore’s gross domestic product (GDP) edged up 0.1 percent on-year, compared with 1.1 percent growth in the first quarter, MTI said.

Ling said the GDP forecast was in line with OCBC’s estimate, adding the bank expected second-half economic growth of around 0.3 percent on-year, about half the pace of the first half.

“We continue to expect a protracted U.S.-China trade war, especially with the 10 percent tariffs for the next US$300 billion of Chinese imports due to kick in on 1 September and U.S. president Trump threatening to hike tariffs further if there is no progress in trade negotiations,” Ling said. “Other event risks on the horizon include the ongoing Japan-South Korea trade spat and the rising possibility of a no-deal Brexit at end-October.”

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