IT’S GETTING HARD to be an optimist about the world economy. China’s reopening is proving solid but unspectacular. Talk of a US recession has resurfaced with vigor. To this unsettling picture, Singapore added its own warning on Friday. It’s been a run of wins lately — for the bumpy-landing camp.
The Monetary Authority of Singapore (MAS) paused its tightening and gave a sobering commentary on global and domestic prospects. In a separate report, the government described a rough first quarter: Gross domestic product shrank 0.7% from the prior three months, a worse outcome than economists anticipated. Little wonder the MAS, which uses the exchange rate as its primary policy tool, was ready for a break. Inflation will end the year markedly lower.
The central bank’s commentary on conditions beyond the city-state is often useful reading, and it hasn’t disappointed this time. A hub for capital and talent, the tiny republic is shaped greatly by trends beyond its shores. The assessment is decidedly downbeat. “The drag on global investment and manufacturing from tighter financial conditions will intensify in the quarters ahead,” MAS said. “The boost to demand in most of the regional economies from their reopening last year will also fade over 2023.”
The agency also flagged the cumulative effects of efforts to combat inflation that have yet to fully work their way through the economy. These are the famous lags in policy impact that monetary chiefs everywhere are increasingly likely to cite.
A growing number of central banks are taking a breather after more than a year of rapid hikes. The break may become permanent. It’s too much to hope that’s reflected in rhetoric. Policymakers have to sound hawkish as long as inflation is above target or at the upper end of comfort ranges. Nevertheless, the message is clear: There’s a lot of tightening that has to weave its way through the economy. This month has seen pauses in India and Australia, and a second month of inaction from the Bank of Korea. Malaysia and Indonesia are done.
I’ve spent many years tracking central banks and the extent to which their actions reflect those of the Federal Reserve. Almost without exception they proclaim their autonomy from the US. This has been easier said than done, but it’s just possible that this time DC is the laggard. Fed officials are still signaling an inclination to lift rates in May despite a staff assessment that a mild recession will begin later this year. Inflation isn’t beaten, though it has likely peaked. The Fed risks overdoing it.
The downbeat vibe was underscored by the International Monetary Fund, which warned about the impact of financial-sector stress. The lender trimmed it’s global forecasts a bit. More significant was what the IMF didn’t say. When the Fund’s economic team visited Singapore in January and used the opportunity to publish upgraded numbers, its chief economist spoke of a “turning point” — for the better. That line was missing from new projections this week.
A big part of the comeback story was an anticipated tailwind from Beijing’s dismantling of COVID restrictions. China’s recovery has been solid, but isn’t winning awards. Disappointing numbers in the past week have people speculating on rate cuts. This is no boom. Anticipation ran ahead of reality. It makes things that much harder for everyone else.
The return of Chinese tourists has given Singapore a lift. The Cost of living is on everyone’s mind: From the price of steak to the explosion in rents. There’s little monetary policy can do to alter some of this. Longer-term factors are at work, such as the scarcity of property, building delays, and an influx of people from Hong Kong and China. The worst of all worlds may beckon: A pronounced slowdown combined with a long-term elevation in the price of basics.
Singapore was among the first countries to tighten in 2021 in response to rising inflation. It gave prescient warnings late last year of the prospect of recession. The “R” word was missing from Friday’s release, though it hovered over the outlook in all but name. Officials sent up a flare. Is Fed Chair Jay Powell watching?
One possible salvation: If things really go south in the major economies and easing is required, Singapore won’t be far behind. You may even hear about it first here.
BLOOMBERG OPINION
