The global economy faces not one, but four key uncertainties. It includes a recession next year, according to Singapore’s central bank chief Ravi Menon. A recession would be a sign that authorities will be in firefighting mode for longer.
- He listed the severity of the slowdown.
- The trajectory of inflation over the medium term.
- The impact of geopolitics on markets
- Climate risk on portfolios is the main risk to the global outlook.
The key question is how deep and prolonged the recession will be. Menon is the managing director of the Monetary Authority of Singapore. He 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. He added that central banks have no choice but to tighten more and for longer than markets predict.
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Singapore, like many economies around the world, is grappling with inflation that has yet to peak and a tight labor market. That is still creating headaches for companies that lack workers as they emerge from the pandemic. The MAS has already been adjusted four times in the past year. Adjustment includes two surprise moves and expects to adjust again next month to slow price growth by the end of the year from the current level of 7%.
Medium-term inflation is likely to be higher for longer, rather than recent benign price gains, Menon said. He added that the era of cheap money and labor is likely over.
Singapore has managed to maintain a stable pace of growth this year amid headwinds. The median of 37 economists in a Bloomberg survey in late August projected a 3.6% growth for 2022 after 8% last year. That will be one of the slowest expansion rates in the Southeast Asian region.
At the same time, the heavily trade-dependent economy is vulnerable to an increasingly dark global picture. It includes a significant impact of weakening on China, its No. 1 trading partner. The global race to higher interest rates provides extra pressure on the central bank to continue to tighten. Even as the local currency has suffered less than its regional peers.
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