Pessimism is in the air as local market watchers await the release of Singapore’s advance third-quarter economic growth numbers next Tuesday.
The International Monetary Fund (IMF) set the tone on Wednesday with a warning that easy monetary policies around the world have lifted market and liquidity risks “to levels that could compromise financial stability if left unaddressed”. This came a day after the organisation slashed its outlook for global growth for this year and next.
But while the clouds gather around the world, analysts here say there is little reason for alarm in Singapore.
A Reuters poll of 13 economists found they expect gross domestic product (GDP) to expand 1.8 per cent in the third quarter from the second quarter, up from 0.1 per cent growth between April and June.
The tepid recovery of the euro zone, highlighted by both the IMF and the Fed, could eventually affect growth here but economists who spoke to The Straits Times noted that the European Central Bank still has many options.
Barclays economist Leong Wai Ho said the warnings from the IMF and the Fed serve as a reminder of how fragile the world economy is.
“Growth is uneven, led by only the US and a handful of small emerging markets. China’s consumption has weakened for the first time in 10 years, accentuated by an anti-corruption drive,” he added.
“Among emerging markets, Latin America has also entered recession. Asia remains one of the better regions, because it is most tied to US demand.”
But while Singapore should be watchful, a crisis is not imminent, he noted, adding: “The euro zone still has further tools it can unveil to fight deflation. It needs to find the political will.”
Similarly, the IMF’s warnings that global stocks need a correction as some equity valuations “could be frothy” should be taken with a pinch of salt, said Phillip Futures investment analyst Howie Lee in a note to clients.
“In all honesty, the IMF has just repeated what we have all known for the longest time. Equity valuations are high and yes, they are due for a correction.”
Mizuho Bank senior economist Vishnu Varathan noted the IMF had revised upwards its growth forecasts for emerging Asia and the so-called “ASEAN Five”, both by 0.1 percentage point, even as it slashed the outlook for global expansion. The ASEAN Five are Indonesia, Malaysia, the Philippines, Thailand and Vietnam.
And while the Fed is worried that a slowing Chinese economy could hurt US exports, the IMF holds the broader view that China can forestall the risks that its economy faces, he added.
“China has got its fair share of risks, in banking and property, but we think that China will still grow out of its problems and has the capacity for infrastructure stimulus which is what they’re trying to kick-start.”