Macroeconomic uncertainty and geopolitical risk flagged as top concerns among Singapore’s financial institutions: MAS

Singapore’s financial institutions were most concerned about uncertainty in the macroeconomic environment including a slowdown in growth and a resurgence in inflation.

Geopolitical risk as well as trade tensions and uncertain policies from newly-elected governments were also cited as risks, says the Monetary Authority of Singapore (MAS) in its financial stability review released on Nov 27.

Among the concerns cited, a slower-than-expected growth outlook for China was top of mind as this could have implications for corporates, funds and loan portfolios that have significant exposures to the country.

Geopolitical risk was also cited as another risk. The intensification of conflicts in the Middle East and Ukraine as well as rising protectionism could bring about disruptions to global supply chains. It could also see inflationary supply shocks in the commodities markets as well. All of these will have a negative impact on growth and financing conditions.

Singapore banks and fund managers also floated their concerns over rising trade frictions, noting that the rivalry between the US and China has already led to changes in supply chains in the region. This could lead to credit and market losses through their exposures to externally oriented firms that are vulnerable to supply chain disruptions.

Currency as well as capital flow volatility were also key concerns. A resurgence in inflation stemming from the heightened tensions and uncertainties could prompt a “sharp pivot” away from monetary easing and lead to a broad-based strengthening of the US dollar (USD) and higher currency and capital flow volatility in the region.

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