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Singapore Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views

The government's acceptance of most of the proposed amendments to the elected presidency shows the ruling PAP's ongoing efforts to adjust the country's political system to ensure stability and continuity. Furthermore, the government's efforts to demonstrate its responsiveness to citizen feedback is likely to further strengthen the position of the ruling party. We therefore maintain Singapore's long-term and short-term political risk scores at 80.6 and 94.8 respectively, reflecting continued political stability in the city-state. We are downgrading Singapore's 2016 and 2017 real GDP forecasts to 1.4% and 1.9% respectively, from 1.7% and 2.2% previously, as the economic headwinds in Q316 are unlikely to abate over the coming quarters. Uncertain external conditions and the government's ongoing restructuring of the economy will continue to weigh on growth.

However, we note that the economy's foundations remain strong, and the flexibility of the economy should enable it to stave off a recession over the near-to-medium term. Ongoing efforts to improve Singapore's Central Provident Fund system highlight the government's continued efforts to minimise its welfare spending as the population ages, and this will be positive for the government's fiscal position. This will likely bode well for the population as well, as the government seeks to ensure that every citizen has sufficient funds for retirement.

In line with our expectations, the Monetary Authority of Singapore (MAS) maintained its policy band; the rate of appreciation of the SGD-NEER policy band, at zero percent; and the level at which it is centred at its biannual monetary policy meeting on October 14. With the MAS having adopted a fairly neutral tone, we expect it to maintain its monetary policy stance throughout 2017 as growth and inflation remain within the monetary authority's forecasts. However, we note that the risks to our view are firmly to the downside. The Singapore dollar is looking technically weak and is under pressure from the ongoing depreciation of the Chinese yuan. Thus, we have downgraded our end-2016 forecast to SGD1.4000/USD from SGD1.3700/USD previously to reflect this. We remain neutral on the currency over the longer term as external headwinds are limited by the country's strong external surpluses. Major Forecast Changes We have revised our end-2016 forecast for the Singapore dollar down to SGD1.4000/USD, from SGD1.3700/USD previously, to reflect weak technicals and downside pressure from a weak CNY.

Table Of Contents

Singapore Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Downgrading Growth Amid Ongoing Rebalancing Efforts8
We are downgrading Singapore's 2016 and 2017 real GDP forecasts to 1 4% and 1 9% respectively from 1 7% and 2 2% previously, as
the economic headwinds in Q316 are unlikely to abate over the coming quarters Uncertain external conditions and the government's
ongoing restructuring of the economy will continue to weigh on growth However, we note that the economy's foundations remain strong,
and the flexibility of the economy should enable it to stave off a recession over the near-to-medium term
GDP By Expenditure Outlook 10
TABLE: GDP GROWTH FORECASTS 10
TABLE: PRIVATE CONSUMPTION FORECASTS 10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 11
Fiscal Policy And Public Debt Outlook11
CPFIS Changes Positive For Fiscal Position 11
Ongoing efforts to improve Singapore's CPF system highlight the government's continued efforts to minimise its welfare spending as
the population ages, and this will be positive for the government's fiscal position This will likely also bode well for the population as the
government seeks to ensure that every citizen has sufficient funds for retirement
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE SOURCES 12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS 12
Monetary Policy 13
MAS To Keep Policy Steady 13
In line with our expectations, the Monetary Authority of Singapore (MAS) maintained its policy band; the rate of appreciation of the
SGDNEER policy band at zero percent; and the level at which it is centred at its biannual monetary policy meeting on October 14
With the MAS having adopted a fairly neutral tone, we expect it to maintain its monetary policy stance throughout 2017 as growth and
inflation remain within the monetary authority's forecasts However, we note that the risks to our view are firmly to the downside
Monetary Policy Framework 14
TABLE: MONETARY POLICY FORECASTS 14
Currency Forecast 15
SGD: Remaining Neutral Amid External Headwinds 15
The Singapore dollar is looking technically weak and is under pressure from the ongoing depreciation of the Chinese yuan and a
dovish shift by the MAS Thus, we have downgraded our end-2016 forecast to SGD1 4000/USD from SGD1 3700/USD previously to
reflect this We remain neutral on the currency over the longer term as external headwinds are limited by the country's strong external
surpluses
TABLE: BMI CURRENCY FORECAST 15
Outlook On External Position 17
TABLE: MAIN EXPORTS BY TYPE AND DESTINATION18
TABLE: MAIN IMPORTS BY TYPE AND DESTINATION 18
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 18
TABLE: CURRENT ACCOUNT BALANCE FORECASTS18
Contents
Chapter 2: 10-Year Forecast 21
The Singapore Economy To 2025 21
Solid Growth Trajectory To 202521
We are fairly upbeat on Singapore's longer-term growth prospects to 2024 relative to other developed markets, forecasting real GDP to
expand at an average rate of 2 7% per annum Key supporting factors will be the government's sound economic policy, a highly skilled
workforce, a superior business environment and financial services industry as well as the city-state's strategic location in Asia Key
constraints include the economy's reliance on the external sector and Singapore's ageing demographic profile
TABLE: LONG-TERM MACROECONOMIC FORECASTS 21
Chapter 3: Political Outlook 25
SWOT Analysis 25
BMI Political Risk Index25
Domestic Politics26
Proposed Changes To Elected Presidency Positive For PAP 26
The government's acceptance of most of the proposed amendments to the elected presidency shows the ruling PAP's ongoing efforts
to adjust the country's political system to ensure stability and continuity Furthermore, the government's efforts to demonstrate its
responsiveness to citizen feedback is likely to further strengthen the position of the ruling party We therefore maintain Singapore's longterm
and short-term political risk scores at 80 6 and 94 8 respectively, reflecting continued political stability in the city-state
TABLE: POLITICAL OVERVIEW 26
Long-Term Political Outlook 27
Political Liberalisation Likely To Be Slow Over Next Decade 27
Singapore faces very limited political risks in the near term and we expect the ruling People's Action Party (PAP) to retain its monopoly
on power through the next two election cycles at a minimum However, over the longer term, the city-state may come under greater
pressure from its citizens to become a more vibrant democracy and foster credible opposition parties For this reason the PAP will retain
its recent shift towards a more consultative policymaking process
Chapter 4: Operational Risk 31
Operational Risk 31
TABLE: OPERATIONAL RISK 31
Business Crime 32
TABLE: BUSINESS RESPONSE TO RISK 33
Government Intervention 36
TABLE: BUSINESSES TAXES 37
TABLE: PERSONAL INCOME TAX RATE 38
Chapter 5: BMI Global Macro Outlook41
Global Macro Outlook 41
Austerity Has Peaked, But Populism Is Not Yet Policy 41
TABLE: GLOBAL ASSUMPTIONS41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 43
TABLE: MACROECONOMIC DATA and FORECASTS 45

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