AxJ Economy 4Q19: Bearing the burden of conflicts
Singapore and South Korea appear to be bearing the largest burden from the trade wars and China’s slowdown. Singapore’s economy contracted 3.3% q/q SAAR in 2Q19. A challenging global economic climate, coupled with the ongoing US-China trade war, are key drivers behind the subpar growth performance. Against the backdrop of a grim economic outlook, negative output gap, and benign inflation, a change in the parameter of the policy band in October is pretty much cast in stone. The SGD NEER is gradually shifting toward the mid-point of the policy band, suggesting that adjustment in monetary policy is in the offing.
The key question is the shape and form of the upcoming policy easing, and there are a few options available for the authority.Meanwhile, South Korea is also facing considerably weaker growth and inflation than previously expected. Both the manufacturing and construction sectors have entered a recession in the context of global demand weakness, technology sector downturn, property market slowdown, and US-China trade tensions. New headwinds have also risen from the recent escalation in Japan-Korea trade disputes.
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