The global economy faces not one but four key uncertainties including a downturn next year, according to Singapore central bank chief Ravi Menon, in a signal that policy makers will be in firefighting mode for longer.
He listed severity of the downturn, inflation’s trajectory in the medium term, impact of geopolitics on markets and climate risk on portfolios as the main risks to the global outlook.
The key question is how deep and prolonged will the downturn be, Menon, managing director of the Monetary Authority of Singapore, said in a speech at the SuperReturn Asia conference of private equity and venture capital enthusiasts. That depends on how high and persistent inflation is, in which case central banks have no choice but to tighten more and for longer than markets are predicting, he added.
Singapore, like many economies worldwide, is grappling with inflation that’s yet to peak and a tight labour market that still is creating headaches for businesses short on workers as they emerge from the pandemic. The MAS, which has already tightened four times in the past year including two surprise moves, is expected to tighten again next month to slow price growth by the year-end from the current 7% level.
Medium-term inflation is likely to be higher for longer, rather than recent benign price gains, Menon said, adding that the era of cheap money and cheap labour are most likely over.
Singapore has managed to keep a relatively steady pace of growth this year amid headwinds, with the median of 37 economists in a Bloomberg survey since late August projecting 3.6% growth for 2022 after almost 8% last year. That will be among the slowest pace of expansion in the Southeast Asian region.
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At the same time, the heavily trade-reliant economy is vulnerable to a darkening global outlook, including significant impact from weakening in China, its No. 1 trading partner. The global race to higher interest rates provides additional pressure on the central bank to keep tightening, even as the local currency has suffered less than regional peers.
