Confronting Covid-19 by Krishnadas Devadas;

Author:Krishnadas, Devadas;
Language: eng
Format: epub
Publisher: Marshall Cavendish International (Asia) Private Limited

Deflationary Threat

Figure 58: Quarterly GDP Growth in Singapore (Data: Monetary Authority of Singapore)

Figure 59: Singapore Consumer Price Index, 2016-2020 (Source: Trading Economics)

Singapore’s economy is on a deflationary track despite the extraordinary five budgets. Low inflation combined with severe and sustained contraction of growth deep into negative terrain, are a recipe for deflation once it translates into rising unemployment, erosion of business and investor sentiment, and falls in consumption.

As counter-cyclical measures are tapered off through the remainder of 2020 and the first half of 2021, if global growth remains subdued to the point of neutral or negative growth, and if Singapore’s connectivity remains constrained – it is notable that while Singapore has announced “Green Lanes”, these are not reciprocal arrangements and none are with our major trading partners – then we will enter the lose-lose condition of deflation and contraction.

It is not possible to spend one’s way back to growth, so fiscal measures are limited to supporting functions rather than truly catalytic ones, at least in the short term.

Deflationary conditions, if protracted, have the propensity to become sticky and have a longer-term inertial effect which then infects consumer psychology and investor sentiment.

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