For Singapore, the global slowdown is another planet


For a small place so closely tied to the financial tides, it’s hard to see signs in Singapore that a global recession is approaching. The city-state is again absorbing foreign labor, pushing the unemployment rate to microscopic levels. The country’s airline is reaping profits and the increase in housing rents is staggering. A global slowdown often looks like it’s happening on another planet. The question may not be whether Singapore’s economy has become a bubble, a loaded term waiting for a painful crash, but how long the nation can continue to defy gravity. Officials have warned that major shifts around the world pose formidable challenges: the end of a decades-long era of low inflation and interest rates, a desire to rein in supply chains, and intense competition between China and the United States. Terrible stuff – in theory – for a republic that grew rich during the height of globalization and the expansion of the capital market. When and how to catch up with Singapore depends largely on Covid and its legacy. Specifically, reopening Singapore is taking the lead over its competitors. After a few false dawns, the city-state got rid of almost all restrictions. Mandatory masking indoors ended in August. Hardly a week goes by without Singapore hosting at least one major international conference. Hong Kong is still grappling with testing rules for travelers. The hiding territory’s approach, combined with Beijing’s national security law, has led to mass exodus. It is difficult to go to any kind of social or business event in Singapore and not meet some who have fled. Japan is open to visitors only. Arriving in Tokyo on a business trip last week felt as though you had landed at Singapore’s Changi Airport – in December. Queues waited for officials to check vaccine certificates and applications before they reached immigration counters in Narita, very few of which were well-staffed. Masks are still commonly worn indoors. (Japan had a tradition of wearing face coverings long before the epidemic.)

Singapore is making the most of its inception. GDP rebounded significantly in the last quarter, the overall unemployment rate fell to 2% and inflation is the highest in 14 years. The central bank has tightened policy five times in just over a year and combined its anti-price measures with grumbling about the deteriorating global picture. The Monetary Authority of Singapore warned last month that “in the coming quarters, the burden on economic activity from a globally synchronized tightening of monetary policy will intensify”.

The force of gravity between the city and the state is reflected in the cost of shelter. Huge increases in prices and rents are a frequent topic of dinner parties. One of your columnists’ rent goes up 30% when you renew your three-bedroom apartment lease early next year—and he might be one of the lucky ones. Offers are made on the property without even an inspection. People think they are only locked in to being pounced on by someone who offers so much more. In Hong Kong, colleagues are moving into larger housing at a lower cost. Is the real estate market dangerously overheated and should policy makers intervene? A case could be made for abandoning the intervention were it not for links with public housing. About 78% of residing households live in Housing and Development Board subsidized apartments, which also account for the bulk of Singaporeans’ wealth. Therefore, HDB prices are a sensitive topic, as the government mediates the competing demands of affordability for young people and prosperity for the middle-aged and elderly.

Pandemic shutdowns have spoiled the supply of new public housing, driving pent-up demand in the HDB resale market. Prices have risen an average of 10% over annual rates for six consecutive quarters. This is not alarming if you consider the 2007-2011 boom. At that time, apartments became 80% more expensive over five years. It’s cumulatively up 25% over the past two years. Neither case comes anywhere near the pre-Asian crisis mania of 1992-1996 when HDB resale prices quadrupled.

But since then, the city and state community has aged. The median age last year was 42, compared to 30 in 1990. Today’s residents must have been more averse to the idea of ​​a prolonged slump in the real estate market than the younger generation that preceded the crisis. Which means the government will be cautious about how much speculation it will allow. Since the inception of the global system of cheap money in 2009, “property cooling measures” have been an integral part of Singapore’s toolkit along with monetary and fiscal policies. Expect them to move into the tight money era if HDB resale prices don’t slow.

There are many reasons why policymakers may act sooner rather than later. For one thing, the current challenge to inflation is serious. While most of the price increases reach the small and open economy with imported goods and services, the local labor market is tight. The authorities will not want to complicate their task by allowing persistently rising housing prices and rents to turn into a spiral of wage prices – not when they spend 3.56 billion Singapore dollars ($2.5 billion) to support families at a higher cost this year. Live and commit S$8 billion to help them deal with higher consumption taxes from next year.

Given this political context, the arrivals’ mockery of milk and Chardonnay at Tony’s downtown cafés is of little importance. But the country’s success has always depended on its reputation as a base camp for large corporations, and its goal of remaining a regional hub rests on its relative attractiveness. There is more to this than property. The island boasts good schools, great infrastructure, and low crime. Did Singapore do a lot of things right, or did its competitors miss a trick? Like most places, it has had its share of political shifts and made mistakes during Covid. However, the more you travel outside of Singapore, the easier it is to get past its epidemiological shortcomings. Enough to deal with the boom that Covid has left the city-state.

More Bloomberg’s opinion:

Singapore’s warning about global growth is a must: Daniel Moss

• Singapore or Hong Kong? DBS offers clues on who’s applying: Andy Mukherjee

• Masks down, Singapore smiles at high-income earners again: Daniel Moss

This column does not necessarily reflect the opinion of the editorial staff or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg columnist covering Asian economies. Previously, he was executive editor of Bloomberg News for Economics.

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