Global and Singapore outlooks stay stable, but threats are on the rise
Interest rates are going down and economic growth looks resilient, but Donald Trump’s second term introduces uncertainty.
Inflation in Asia, which has been more supply-side driven, has eased, says DBS economist Chua Han Teng. PHOTO: WEE TECK HIAN, BT
The current volatile economic landscape presents both challenges and opportunities, DBS economist Chua Han Teng said at the bank’s Market Outlook 2025 – Beyond New Frontiers event on Wednesday (Dec 4), where he noted three key areas of discussion: the global landscape, Singapore’s economic prospects and the impact of incoming US president Donald Trump.
The global landscape is “quite critical” for an open, trade-dependent economy like Singapore, Chua said.
He noted that global inflation is already easing, due to post-pandemic relief from supply chain disruptions; the settling of commodity prices to “more manageable levels”; and high interest rates in recent years, which has dampened aggregate demand.
Advanced economies such as the US and European Union saw higher inflation than Asia, but that has generally come down, he said.
Inflation in Asia, which has been more supply-side driven, has also eased.
Consequently, interest rates also seem to have peaked, and are expected to come down gradually. Major central banks have begun to cut rates to tighten monetary policy, he said, highlighting that the US Federal Reserve has reduced rates by 75 basis points since September.
In 2025, DBS expects steady-to-lower interest rates across economies it covers – excluding Japan, where rate hikes are still anticipated.
Chua believes there is room to further cut US rates to around 3.5 per cent, which will also give regional central banks, such as in Indonesia and the Philippines, space to review their monetary policy tightness. China will also see further rate cuts in 2025.
The global economic growth landscape is “looking quite resilient at this juncture”, he said, though Chua noted higher uncertainties and varying growth paths. Growth is “quite resilient and robust” in the US, while Europe is “a bit sluggish”, albeit recording a turnaround.
By and large, Asia is a key growth engine, with Asean being a significant economic bloc. “Going into 2025, we generally expect a stable economic growth outlook.”
Closer to home
This backdrop should inform Singapore’s “favourable” prospects. With stable economic growth, Chua said: “We still expect a dynamic outlook, even though the world is becoming more volatile.”
Singapore’s economy has gained momentum in H2, and should outperform with 2024 full-year gross domestic product growth of 3.8 per cent, compared to 2023’s 1.1 per cent.
External-oriented sectors – manufacturing, trade-related services and modern services – are key growth drivers, and “have turned around quite well” due to improved external demand, he noted.
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Momentum going into next year is still quite strong, likely leading to “still quite decent” GDP growth of 2.8 per cent, aligned with the country’s long-term 2 to 3 per cent potential growth rate.
Official surveys reflect positive business sentiments for Q4 2024 and going into 2025, he added, particularly in external-oriented sectors.
Electronics output is “catching up to the global upturn and benefiting from the turnaround in the global tech cycle”. While artificial intelligence (AI) and data centre-related demand may moderate, increasing adoption of AI applications in consumer devices will continue to bolster chip demand.
“With manufacturing doing decently, that will have positive spillover for the Singapore wholesale trade sector, and the World Trade Organization is still expecting a decent growth over the coming year, and that should help to support Singapore’s trade-related services cluster,” Chua said.
On the modern services cluster, he noted that predicted rate cuts should spill over to Singapore’s credit demand and investment-related financial market activities, bolstering the financial services sector.
Digital adoption should also boost the information and communications technology sector’s contribution, given the room for smaller business to catch up with big companies and government support.
The Trump threat
Yet, Chua remained watchful of downside risks and uncertainties for Asia and Singapore, flagging “Trump 2.0” in particular.
Trump’s election win “certainly creates a more volatile and uncertain economic environment”, he said. The Trade Policy Uncertainty Index, which measures uncertainty based on searches of news articles, indicated that uncertainty was at its highest since 2019, as at October, before Trump was elected.
“I can imagine that the uncertainty has increased in November, and possibly in December,” he said.
One reason is the potential of a wider trade war. Trump has threatened 60 per cent tariffs on all Chinese-imported goods into the US and tariffs on the US’ top three trading partners, reinforcing his protectionist stance.
While the global economic impact of such plans will depend on how these policies are rolled out, there are significant downsides to highly open economies such as Singapore, from the tariffs and the elevated uncertainty, which warrants vigilance, he said.
Trump’s first stint in the top role also provides some cues, Chua said, noting that Asia trade initially continued to grow, but then started to slow and eventually contracted, when the US first announced tariffs against China.
“But there’s still opportunities for us to embrace, even in this volatile world,” he concluded.
Brought to you by: DBS
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