By JEREMY MCKENZIE Singapore is facing another major economic slowdown this year as GST repeal risks another blow to the country’s growth.
The economy was up by 4.3 percent in the first quarter, compared with a 3.7 percent gain in the previous quarter.
It is now projected to grow at just 1.3 per cent this year.
The country’s central bank said last month that it would be taking further steps to reduce its borrowing costs to stave off a recession.
But it has warned the effects could last well into 2019, with growth in 2020 projected to be less than the previous year’s 4.6 percent.
Its decision comes amid a flurry of talk in Singapore of how it might soon consider raising the countrys capital stock to cope with the tax.
A move to raise the stock is widely expected as a way to counter a recent decline in exports.
The devaluation has hurt Singapore’s exports, which had been expected to gain 1.6 percentage points in the second quarter after recovering a 3-point gain in their first.
But the government said in its quarterly report that it will be taking measures to reduce the risk of a deflationary spiral that could derail economic growth.
Its Monetary Authority of Singapore (MAS) said that it has already raised its policy interest rates to 3.5 percent and will increase the pace of monetary easing later this year or early next.
The MAS has warned that any further rate hike would increase the risk that the country would be dragged into deflationary turmoil.
But MAS chief executive officer David Chin said that Singapore’s debt would likely remain low, at around 60 trillion Singapore dollars ($2.4 trillion), because of its low cost of borrowing.
“In the long run, the debt burden will remain relatively low because we have such low interest rates,” he told a news conference last month.
“We can afford to take on more debt than we otherwise would have, but we can also borrow to keep our economy moving forward.”
But MAS has also raised its interest rates several times this year, including twice in January, when it said it had no plans to raise rates.
Last month, MAS chief economist Dr S. Jayant Sinha said the country should focus on maintaining the current level of growth, which is already 2.7 per cent, rather than raising interest rates.
He said that lowering interest rates could increase the country´s borrowing costs and could be seen as a political ploy to encourage private sector investment and raise inflation.Singapore´s growth has also been sluggish in recent months, with annualized growth falling to 0.9 per cent in the three months through April, down from 3.2 per cent the previous three months.
Its inflation rate fell to 4.5 per cent last month, from 5.5.
Analysts have said that the impact of GST repeal will be felt for years to come.