Singapore woman counting her cash. | AI image by Connected to India
The Monetary Authority of Singapore (MAS) has said in its Financial Stability Review 2024 that Singapore households, as well as corporate firms and financial institutions, “have adequate buffers but need to be prepared for volatility in the external environment”. The message is: be careful with your cash.
It also said that “highly leveraged” companies and households “could face debt-servicing pressures, and they should manage their finances prudently”.
In its analysis of the ‘Global Macrofinancial Environment’, the central bank of Singapore said that while global economic activity “has remained resilient”, there was still a risk because of “heightened policy uncertainty, trade tensions, and geopolitical conflicts that increase the probability of adverse shocks”.
Small nations like Singapore would need to be particularly watchful. MAS said: “For trade-dependent small economies, a negative scenario could include terms-of-trade shocks, compounded by a global growth slowdown, higher-for-longer [interest] rates, and renewed dollar strength.”
One of the major shakeups in the global economy is coming with the return of Donald Trump to the White House. Among his expected policy decisions, as already announced, is the imposition of higher tariffs on products from certain countries, including China.
Singapore, as a nation friendly to and doing business with both the United States and China, is likely to be affected by a trade war between the two large economies, but how and to what extent remains unclear.
The last time an America-China trade war happened — that was during the first Donald Trump presidency from 2017 to 2020 — Singapore did feel the economic impact.
In July 2018, then Minister for Trade and Industry Chan Chun Sing (now Education Minister) told Singapore Parliament that if the US-China trade war spiralled and hit business sentiment and consumer confidence, or if it led to tighter global liquidity, then Singapore’s open economy would be “significantly affected”.
The minister was quoted by the media as saying, “The trade conflict between the US and China… will have global repercussions. Not only will it inhibit global trade and global growth, [but] there will also be disruptions to supply chains impacting businesses, jobs and consumers.”
US President-elect Donald Trump with tech baron Elon Musk, who has become one of the top names in the coming Trump Administration. | Instagram/realdonaldtrump
Tariff wars and real battles
In addition to the coming tariff war, there are the actual battles being fought on the ground — between Russia and Ukraine in Europe, and between Israel and Hamas-Hezbollah in the Middle East. All of these conflicts can impact small and open economies.
Three factors — Start of US-China trade war; Russia-Ukraine conflict; and Middle East tensions — have caused a spike in ‘Geopolitical risk and trade policy uncertain indices’ in the MAS Financial Stability Review 2024.
In this context, institutions and individuals in Singapore are advised financial prudence, as economic blows can come from anywhere.
As of now, Singapore is in good financial shape, but vigilance is needed to keep it so. The FSR 2024 document said: “Corporates, households and banks in Singapore have remained resilient. Overall bank credit quality is strong as most corporates have low debt levels, whilst households have benefitted from continued wage growth and strong balance sheets.”
Analysing each segment, the MAS report said:
● “Singapore’s corporates have maintained debt levels significantly below pre-COVID averages. While leverage risks increased due to weaker corporate earnings and still elevated borrowing costs, firms continue to have healthy debt maturity profiles and adequate liquidity buffers.”
● “The household sector in Singapore has a strong balance sheet and good credit quality, despite the higher interest rates over the past year. Leverage risk has moderated with domestic mortgage rates recently beginning to come down. Debt servicing ability remains healthy, supported by firm wage growth. Liquidity risk is low, as the excess of cash and deposits over household liabilities has continued to grow.”
● “The banking sector has maintained strong capital and liquidity positions. For the non-bank sector, insurers remain well-capitalised and most investment funds have managed liquidity risks well.”
MAS said that “stress tests show that the corporate and household sectors have adequate capacity to manage shocks to incomes and financing costs”.
All the same, MAS warned, “a sharp deterioration in the global outlook” could put pressure on the Singapore economy. “Banks and non-bank financial institutions should also remain vigilant against potential liquidity risks,” the FSR 2024 document said.
(The article is published under a mutual content partnership arrangement between The Free Press Journal and Connected To India)
