Singapore’s Q3 economy expanded 0.1% year-on-year, or 0.6% quarter-on-quarter, defying fears of a technical recession but still missing market expectations of a 0.2% year-on-year growth.
Prevailing weakness in the manufacturing sector (-3.5%) was largely offset by the resilient service industry (+0.9%) and robust construction sector (+2.7%).
In view of soft economic growth and global uncertainty, the Monetary Authority of Singapore (MAS) decided to ease monetary policy slightly in a bi-annual meeting today. The MAS has adjusted the slope of its policy exchange rate band S$NEER to a lesser steepness, in an attempt to reduce the pace of appreciation of the SGD.
The policy guidance came below market expectation, with most analysts previously expecting the central bank to flatten the S$NEER curve or even make it downward sloping. A mild monetary easing is probably insufficient to boost manufacturing and exports in the short term. But the central bank also said it is ‘prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly.’
Before the meeting, the SGD is holding well above the midpoint of its S$NEER currency band due to safe haven flows that lifted demand for the SGD recently. This morning, the SGD strengthened against the USD to 1.370 area, suggesting the market is unwinding expectations for a bigger policy move.
China’s trade balance to be announced today at 10:00am SGT will be widely watched to assess the impact of trade tariffs to the world’s second largest economy. The China import data is now carrying a bigger significance as it is a fairly good indicator of export growth in other trade-oriented economies, such as Japan, Korea, Singapore and other ASEAN members. Currencies in focus will be USD/CNH and AUD/USD.
Asian markets are poised to open higher on Monday, as positive developments from the US-China trade talk has set an upbeat tone for risk assets. Both the US and China have acknowledged ‘material’ progress in various areas including agricultural, intellectual property and currency last week and the additional 5% tariff to be imposed on 250 billion Chinese goods this week will be delayed. USD/CNH has fallen to 7.082 area this morning.
As risk appetite improves, safe-haven assets such as gold, treasuries, yen saw some profit-taking and their prices fell for a third day.
Singapore GDP - YoY
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Margaret Yang Yan