moodys slashes singapores gdp forecasts citing chinese deceleration 1250762015

China is Singapore’s biggest export destination

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By :  ,  Financial Analyst

Moody’s Investors Service has drastically downgraded its estimates for economic growth in Singapore, and for many other Asia-Pacific economies, due to softer export demand in the context of subdued global growth and slowing imports by China.

“Weak demand from China has dampened the overall export outlook for the region, while softer commodity prices weigh on some sovereigns' export revenues, growth and fiscal balances,” Moody’s said.

For Singapore, Moody’s cut its growth forecasts for this year to 1.7 per cent and for next year to 1.8 per cent, compared to an earlier forecast in May of 3 per cent growth for both years. The ratings agency said the island republic would suffer from weaker trade and financial flows due to the economic slowdown in China.

Moody’s estimates are far below those of Singapore’s Ministry of Trade and Industry, which has projected growth between 2 per cent and 2.5 per cent for 2015, down from earlier estimates of a range of 2 per cent and 4 per cent.

Latest data showed that on a year-on-year basis, China’s exports dropped 5.5 per cent in August while its imports plunged 13.8 per cent, raising fresh fears about the slowdown in the Chinese economy.

Moody’s expects China’s GDP growth to be 6.8 per cent this year and 6.3 per cent next year.

“High frequency indicators suggest that China’s economy, which constitutes around 13 per cent of global GDP, is undergoing a broader-based deceleration than we anticipated,” Moody’s said, as quoted by TODAY. “Recent Purchasing Managers’ Index (PMI) data illustrate the slowdown. Both the official PMI and the Caixin index indicated a contraction in manufacturing activity in August, with readings of 49.7 and 47.3, respectively. Indicators of credit growth, machinery imports and fixed asset investment tell a similar story of slowing momentum. The increase in new urban employment also contracted in the first two quarters of 2015 from year-earlier levels.”

In other factors which can adversely impact on growth in the Asia-Pacific region, Moody’s cited the tendency of households to save most of the gains from lower energy costs, ineffective government and infrastructure spending, market volatility and political risk that weighed on consumer and business confidence.

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