4 economic woes in Singapore that will keep you wide awake at night

2014 is  a year of slow global growth, says analyst.

According to CIMB, it sees 2014 as a year of slow global growth and muted inflation in developed markets. A lack of inflation takes away any urgent need to unwind extraordinary QE policies.

CIMB noted four macro factors that Singaporeans must watch out for.

Here's more:

Macro factor #1: eventual Fed tapering

This is the elephant in the room for equity markets. Our house believes in a Fed tapering in 2Q14, with a likelihood of delays.

From a stock-selection perspective, we think the timing doesn’t matter. The way markets work is that until interest rates actually normalise, investors will anticipate the event and interest-rate-sensitive sectors in Singapore will not do well.

We reckon that the road to outperformance for the property and REIT sectors will open up only after interest rates rise.

In 2013, we were negative on REITs and more positive on developers on valuation grounds. Though the REITs underperformed, the developers did not do much better either. Until rates rise, we think their performance in 2014 will be similar.

Macro factor #2: Singapore’s labour restructuring

Singapore is changing its economic-growth model, moving from input-based to productivity-driven. For PMET workers, the Manpower Ministry has brought down its approval rate for employment passes and imposed hiring processes to spur MNCs into hiring locals. This has helped to keep the unemployment rate below 2%. Social engineering is increasing.

There is talk of raising taxes for higher-income brackets (currently 20%) in order to increase subsidies for the poor. At the lower-wage level, the government has raised foreign-worker levies and reduced foreign-worker dependency ratios.

It is true that the construction and F&B sectors are struggling; some firms have closed shop because of a lack of labour, not because of any inability to make ends meet.

But all this restructuring has not really led to a jump in corporate bankruptcies, at least, the banks have not noticed a dramatic spike in such bankruptcies.

Macro factor #3: household and credit-card debt

The concern for Singapore was never its government debt levels or corporate gearing. We also previously refuted concerns about rising household debt in Singapore, noting the relationship between income levels, wealth, debt and savings.

When one earns more, one will also save more, spend more and take on bigger debt to fund more luxurious consumption. Our studies show that Singapore’s household-debt-to-GDP ratio is below the range for countries in the same GDP per capita bracket.

Our studies also suggest that Singapore’s household-savings-to-GDP has similarly risen at a fast clip i.e. excess savings are present. That explains why take-up for some residential launches has again touched 80%, despite various credit restrictions and high stamp duties.

Separately, we concede that the accelerated expansion of unsecured debt is a cause for concern, which may explain the government’s lending caps for car loans and credit cards in 2013. 

Macro factor #4: a fragile global recovery

Our economists share the consensus view of a slow US recovery. The recession in Europe might be over statistically but the danger of another shock is not over. 

Our house views on China and Japan are brighter. We believe that China is steadying to a structurally lower GDP growth rate while Japan’s growth is ticking up. Our economist uses vehicle sales as a proxy for consumer demand in Asia. He sees a steady situation for most markets, except Thailand.