Thursday 21 June 2012

Singapore's economy strong, resilient to global shocks: Moody's

But Moody's says it faces challenges with slower growth, changes in political arena
By Aaron Low, The Straits Times, 20 Jun 2012

SINGAPORE has a high degree of resilience to global financial shocks, despite its open economy and dependence on global finance and trade, said ratings agency Moody's Investors Service.

But the economy is facing structural challenges with slower growth and changes in the political landscape.

Still, Moody's is keeping a stable outlook on its triple-A rating on Singapore's sovereign credit, citing strengths in its economy, institutions and the Government's financial position.

In its annual credit report on the country released yesterday, Moody's said Singapore excels in four areas: its strong economy, institutions, government finances and low vulnerability to external shocks.

It noted that the economy had rebounded from its recession in 2009 to 14.8 per cent growth in 2010, largely due to a competitive trade sector and flexible labour market.

But Singapore faces a key challenge in raising productivity and innovation as global competition heats up.

The report also noted that liberal immigration policies had helped boost growth in the past 10 years.

But 'rising popular anxiety over the significant increase in the number of foreign workers has prompted the Government' to change its immigration policies.

This will in turn lead to a tighter labour market and contribute to upward pressure on costs, unless productivity measures can help offset the rise.

Singapore's Government and institutions also are a source of strength for the economy, although global trends are putting a strain on government policies.

One area of concern was the country's ability to use monetary policy to keep prices stable, with inflation having moved above 5 per cent recently.

Moody's noted the exchange rate policy did not prevent interbank interest rates from dropping to historic lows, while the high costs of cars is outside the exchange rate's influence.

Demand for housing also remains high even though cooling measures have helped slow price increases.

Moody's has also rated the Government's financial position as being 'very high', despite the move to channel more resources to help lower-income earners.

It said the country's strong balance sheet was backed up by investments made by the Government of Singapore Investment Corp (GIC), which manages more than US$100 billion (S$127 billion) of Singapore's reserves.

'Notwithstanding the lack of transparency of the assets managed by the GIC, the balance sheet strength of the Government has ensured the resilience of its credit profile through the global recession,' said Moody's.

The report added that Singapore's financial system remains resilient to shocks, largely due to local banks' healthy balance sheets.

On the domestic front, Moody's said political risks remain low, even though the recent general election, presidential election and Hougang by-election had indicated 'an erosion in support' for the ruling People's Action Party.

'While politics have become livelier, political stability or social cohesion are not under threat,' said Moody's.

'The quality of institutions and the civil servants who manage macroeconomic and fiscal policy are not likely to be affected by recent political developments.'

No comments:

Post a Comment