Jovi Ho & Lim Hui Jie
The global economy is in a fragile state, and economies — including Singapore’s — might slow down, warns Temasek. “Ongoing geopolitical uncertainties, rising inflation, surging commodity prices and severe supply chain bottlenecks have uncovered further fault lines in the global marketplace.”
Against the backdrop of an increasingly fractious geopolitical environment and a looming climate crisis, economies are now more vulnerable, adds Temasek, with key developed markets potentially facing a risk of recession.
Taking into account the reasonable likelihood of a recession in developed markets over the next year, Rohit Sipahimalani, Temasek’s chief investment officer, says the company will maintain a cautious investment stance.
China may face challenges achieving its 2022 GDP growth target of 5.5%, given weakness in its growth so far this year, says Temasek. Policies are likely to be supportive, to buffer headwinds from soft property activity and pandemic restrictions, they add.
In the US, the labour market remains tight and inflationary pressures continue to be strong, says Temasek. “Against a backdrop of tightening financial conditions, negative fiscal impulse and elevated geopolitical uncertainty, growth is likely to slow meaningfully and below trend, raising the risks of a recession into 2023. A recession, if it occurs, will likely be relatively mild as healthy private sector balance sheets will provide a buffer.”
In Europe, Temasek expects a meaningful slowdown in 2H2022 due to the impact of the Russia-Ukraine conflict on consumer income and business confidence. “With inflationary pressures exacerbated by rising energy costs, the European Central Bank is likely to normalise monetary policy and exit negative rates by the end of this quarter. Increases in interest rates in a slowing growth environment could lead to a recession, which would be aggravated if a full Russian gas cut off occurs.”
According to Temasek, the pace of expansion for the Singapore economy may be slower than earlier projected. “Even though pandemic reopening will facilitate a stronger recovery in domestically-oriented and travel-related sectors, growth prospects in Singapore’s externally-oriented economy will be weighed down by the global backdrop and a risk of recession in developed markets.