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Serious Rising interest rates worrying for Singapore economy: economists

hbk75

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http://www.businesstimes.com.sg/gove...omy-economists

THE expected rise in interest rates will further weaken Singapore's already slowing economy, said economists at a high level discussion last week.

But manoeuvring space for further monetary policy response in order to stoke inflation and growth remains tight, as Singapore remains highly indebted, they added.

Over a three hour session on Wednesday, attendees of the 25th Singapore Economic Roundtable talked of a Singapore economy that faces stresses on multiple levels.

Even as the economy tries to shake off these woes, they foresee another looming on the horizon, and one that may just make it worse for Singapore: rising interest rates.

Last month, the US central bank said that it will look to raise interest rates in June should economic data point towards stronger growth.

This will result in Singapore's economy entering into a second straight year where real interest rates exceed real growth, making debt unsustainable, said Taimur Baig, chief economist at Deutsche Bank who presented at Wednesday's discussion.

This differential was at -1.6 per cent in 2015, and is expected to be at -0.8 per cent this year, he said.

Dr Baig pointed out that when the financial crisis hit in 2008, growth rates were negative. But Singapore kept interest rates substantially low, which cushioned the economy.

But now, deflationary pressures make it hard for Singapore's highly indebted economy to respond to rising interest rates.

"It is really, really bad right now," he said.

The roundtable is a twice yearly meeting of a small group of policymakers, private sector economists and business leaders. It is intended to generate discussion of major issues facing the Singapore economy, and is co-organised by the Institute of Policy Studies and The Business Times.

Dr Baig's presentation on Wednesday, in sketching a "sobering outlook" - as stated in its title - for Singapore, set the tone for the discussion.

"Low growth and high interest rates are a poor combination for a highly leveraged economy like Singapore," said Dr Baig. Deutsche Bank puts Singapore's total debt at about 300 per cent of GDP.

The Monetary Authority of Singapore (MAS) previously put aggregate corporate debt-to-gross domestic product (GDP) ratio in 2014 at 145 per cent. Household debt-to-GDP ratio is at about 75 per cent, while household debt-to-income ratio is at about 2.2 in 2014.

Yet, the roundtable discussants see dwindling array of policy responses left to maintain economic stability here even as rates rise.

For one thing, the central bank will find it harder to stoke inflation.

Core inflation - a key consideration for monetary policy - will come in at "the lower half of the 0.5 to 1.5 per cent forecast range" this year, and at slightly below 2 per cent in the medium-term.

Credit Suisse is decidedly more bearish. It sees core inflation at just 0.4 per cent over 2016 and 2017, said discussant Ray Farris, the bank's head of Asia macro strategy, quoting from a May 10 note that he co-authored.

But Singapore's high levels of indebtness means that easing the Singapore dollar nominal effective exchange rate (S$NEER) policy band will result in a larger negative impact.

Said Dr Baig: "A corollary of weaker NEER is higher interest rates domestically, which is not quite tenable under the current condition of high debt. Consequently, the cost of Singapore dollar devaluation has gone up."

Yet, low prices are not good for growth, and in fact raises the stakes for an economy trying to shake off a slowdown.

"A prolonged period of deflation and disinflation that pushes down nominal GDP growth rate can have far reaching impact on the economy, hurting revenues, margins and debt sustainability," said Dr Baig.

Already, there is talk that Singapore's slowdown will worsen.

Credit Suisse has revised its forecast to see next year's growth coming in slower than this year's. It previously saw growth at 1.7 per cent in 2016 and 1.8 per cent in 2017. It has since cut them to 1.4 per cent and 1.2 per cent respectively.

Economists at the roundtable now see a heavier expectation on the government to promote growth.

While Credit Suisse still expects MAS to re-centre the S$NEER band downwards, it predicts this will only happen in April next year, as the government leans on fiscal measures to combat economic slowdown in the meantime.

Some measures include additional stimulus, removal of some property cooling measures, and administrative measures, said the bank.

Attracting investments and encouraging firms to expand overseas are also good approaches, said UBS senior Asean economist Edward Teather, who was at the roundtable.

"The authorities' efforts to support productive investment, open international markets and allow the economy to adjust should help the Singapore economy cope with externally induced adverse surprises," he said.
 

krafty

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dun worry, global interest rates staying low, minimal impact. but it's true that s'pore is in low deflation and stagnant mode.
 
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virus

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Good lard is for sure. The whore world economy will tank for sure. Currency will spiral down, speculators will form queue to b superman jumpimg fr mbs, coe will drop to $8, hdb flat will become unaffordable n oil will hit $200.
Almost everyone will suffer except cuba n north korea.
So buy gold.
 

hbk75

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dun worry, gloabal interest rates staying low, minimal impact. but it's true that s'pore is in low deflation and stagnant mode.

Petrodollar slowly taken over by Chinese yuan. Fed will hike rates in June to make usd more creditable.
 

johnny333

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A bad economic recession brought brought down Suharto. It may take something drastic like that to bring down the PAP. 5 years may be long enough to convince the 70% to change their minds.

I don't see LHL giving up the FamiLee business willingly unless there is an illness in the family or angry Sporeans kicking him out.
We'll see how this recession plays out:wink:
 

hbk75

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A bad economic recession brought brought down Suharto. It may take something drastic like that to bring down the PAP. 5 years may be long enough to convince the 70% to change their minds.

I don't see LHL giving up the FamiLee business willingly unless there is an illness in the family or angry Sporeans kicking him out.
We'll see how this recession plays out:wink:

70% need a serious wake up session.
 

Runifyouhaveto

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During the recent G7 meeting, the focus is back on currency war and participating countries are concerned about a weaker JPY. Just six months ago, G7 was worried about a strong USD. However, the market suddenly reversed because US decided to delay their rate hikes (to fight the currency war?) and US Dollar index dropped 5-10% in the past 6 months.

In the next 6-12 months, interest rate upside is likely to be very tamed and oil prices increased by 35% since Chinese New Year. Some speculate that if oil collapses back to CNY level, global interest rates will find no room for increment. In local context, you will notice that the average yields of our Singapore Government Saving Bonds dropped from 3%pa to 2% (average for 10 years) - comparing first launched and June rates..
 

johnny333

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Asset
70% need a serious wake up session.

Sporeans & that includes the PAP must live within their means.
How can we keep on paying MPs more that what the US President makes :confused:

We can no longer allow a silly woman like Ho Ching to squander our hard earned savings.
 

Runifyouhaveto

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The Singapore growth "good-feeling" is completely over after the elections. It's time to face the real world and loss of economic confidence is mounting. We are a highly illiquid marketplace, how often can big boys offload a 1% stake in our blue chips listed companies or that small office building in CBD efficiently. With an illiquid economy and our hands are also tied if we increases rate to normalize our economy; we risk rocketing the strength of SGD and destroy our exports and local-jobs.

If you agree with my generalized illustration that Singapore cannot play too much with interest rates, MAS must intervene into the local SGD govt and corp bond market like Eurozone. (ECB actively trades bonds issued by European Govt and Companies). By manipulating bond prices, bond yields can be swayed at will to tide things over, without directly manipulation of SIBOR and SOR.

Today, we are looking at countries fighting asymmetrical FX warfare between rich small states, rich big states and poor big states. Big or rich does not equate to victory as keynesian economics might not work anymore. Thinking out of the box is insufficient for Singapore, we should throw away the box.
 

frenchbriefs

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Asset
Deleveraging is inevitable.is there any way to profit from this?stock up on cash and wait for depressed asset prices?
 

krafty

Alfrescian (Inf)
Asset
The Singapore growth "good-feeling" is completely over after the elections. It's time to face the real world and loss of economic confidence is mounting. We are a highly illiquid marketplace, how often can big boys offload a 1% stake in our blue chips listed companies or that small office building in CBD efficiently. With an illiquid economy and our hands are also tied if we increases rate to normalize our economy; we risk rocketing the strength of SGD and destroy our exports and local-jobs.

If you agree with my generalized illustration that Singapore cannot play too much with interest rates, MAS must intervene into the local SGD govt and corp bond market like Eurozone. (ECB actively trades bonds issued by European Govt and Companies). By manipulating bond prices, bond yields can be swayed at will to tide things over, without directly manipulation of SIBOR and SOR.

Today, we are looking at countries fighting asymmetrical FX warfare between rich small states, rich big states and poor big states. Big or rich does not equate to victory as keynesian economics might not work anymore. Thinking out of the box is insufficient for Singapore, we should throw away the box.


ah run, your analysis sibeh gao lat. i wish i have questions to ask you but i am dumbfounded.:o but after some thinking, do you mean MAS will intervene by buying their own gahment bonds to weaken sgd? then, what will happen to the issue last year to retail players? still intact or also yield affected??
 

frenchbriefs

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ah run, your analysis sibeh gao lat. i wish i have questions to ask you but i am dumbfounded.:o but after some thinking, do you mean MAS will intervene by buying their own gahment bonds to weaken sgd? then, what will happen to the issue last year to retail players? still intact or also yield affected??

u mean MAS is going to print money to buy gahmen bonds?doesnt make sense if they use real cash reserves to buy their own bonds,that will be reducing their debt.....will there be inflation in a downturn or deflationary cycle?since in a downturn or recession,people are spending less and banks and creditors are lending less,the liquidity from printing is only going to replace the reduced spending and lending in the economy,as long as the government dont print more than what is necessary,there will be no inflation or hyperinflation,and the economy will have a easier smoother deleveraging process......from what i learnt on youtube.
 

borom

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Asset
Makes no difference how many millions you pay them not to be corrupt-as they can't solve the problem anyway.

With so many problems looming on the horizon, how many party in this world can make elections for MP's into a municipal issue of parks, linkways and emergency buttons!
 

hbk75

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Loyal
u mean MAS is going to print money to buy gahmen bonds?doesnt make sense if they use real cash reserves to buy their own bonds,that will be reducing their debt.....will there be inflation in a downturn or deflationary cycle?since in a downturn or recession,people are spending less and banks and creditors are lending less,the liquidity from printing is only going to replace the reduced spending and lending in the economy,as long as the government dont print more than what is necessary,there will be no inflation or hyperinflation,and the economy will have a easier smoother deleveraging process......from what i learnt on youtube.

mas is stuck also. need devalue sgd to boost export. but if sgd devalue means interest rates will go up. causing alot of problems to those who have borrowed to buy expensive houses.
 

Runifyouhaveto

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do you mean MAS will intervene by buying their own gahment bonds to weaken sgd? then, what will happen to the issue last year to retail players? still intact or also yield affected??

I am just speculating bro

I refer to my earlier analysis, sorry I can only explain in layman terms for I am not a professional

Yes, Singapore has no other choice but to engage in bond-buying program like CSPP. There are RON95 and RON98 (different prices and fuel power like FX and interest rates). Bond buying program is like driving a bigger CC car with the same fuel (minimise impact on interest rates and FX strength).
 
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