MAS, MTI, Core inflation

Singapore’s core inflation contracted -0.3 percent

The country’s core inflation contracted for another consecutive month in August, with authorities expecting economic challenges and a weak labor market to continue to dampen consumer demand.

Core inflation, a main consideration for Singapore’s central bank, fell -0.3 per cent in August in comparison with the same period last year, said the Monetary Authority of Singapore and Ministry of Trade and Industry said in a joint news release on Wednesday.

Singapore’s core inflation had fallen -0.4 per cent in July.

The pace of decline had moderated mainly due to a smaller decline in the cost of services, retail and other goods, as well as electricity and gas, said MAS and MTI.

The headline consumer price index (CPI) or overall inflation remained unchanged at -0.4 per cent year-on-year in August after a sharper fall in private transport costs was offset by a more moderate decline in the core CPI components.

MAS and MTI said inflation is expected to remain subdued overall, and their forecast of MAS Core Inflation and CPI‐All Items inflation averaging between -1 per cent and 0 per cent this year.

Economic Downturn

Let’s remember that Singapore suffered a big economic downturn in the Q2 of the year that led to a recession, this as consequence of the crisis for Covid-19 pandemic.

The services and construction sector were the most affected by this economic downturn, the construction sector was practically paralyzed with a 95% drop in the last quarter

The Singapore government forecasts that the GDP will shrink between 4 and 7% in annual terms, which would be considered the worst decline in its history.

The Ministry of Trade attributed the contraction to “low external demand in the context of a downturn in the global economy.”

Although the city-state is slowly going back to its usual activities (opening restaurants, allowing some flights, etc.) it will take some time for things go back to how they were, if they ever go back.

MAS promotes financial stability to boost the Singaporean economy

The Monetary Authority of Singapore pointed out that the agency promotes actions to guarantee financial stability and boost the economy

The head of the Monetary Authority of Singapore said that the agency promotes financial stability for the boost of the economy of the city-state.

In a speech to the president the head of the agency, Tharman Shanmugaratnam, said that they are working with the financial and Fintech sectors.

He also said that the aim is to make Singapore emerge stronger from the crisis and promote the city-state as a global financial center.

In that sense, he pointed out that MAS is focused on providing the support that the financial area requires.

In this way it can continue to support the economy and provide jobs for Singaporeans.

Policies to promote financial stability

Ensure monetary stability:

The agency adopted an accommodative monetary stance to complement the fiscal policy measures that mitigate the economic impact.

Promote financial stability:

MAS provided a series of regulatory measures that do not compromise prudential standards.

Support for people and companies:

The agency promotes a comprehensive package of measures that provide relief to individuals and companies to meet their loan and insurance commitments.

Positioning the financial sector to emerge stronger:

It ensures that the financial sector is well equipped to emerge stronger from the crisis and promote Singapore as a global financial center.

Singapore’s economy is currently going through its most severe decline since independence.

Since the start of the pandemic, the government has allocated more than 80 billion dollars to support the economy amid trade tensions and the global economic crisis.

Official data indicate that the national economy contracted 6.7 percent in the first half of the year, with a record drop in the second quarter.

Challenges facing the port and maritime industry

The global economy is highly linked to the maritime industry, a high percentage of goods and articles of mass consumption depend on this activity.

This 2020 has passed with Covid-19 as a constant, the virus far from being a public health problem became the main cause of the global economic crisis that the governments of the world are currently facing.

At the beginning of its spread, little was said about its repercussions in the economic area, today it is necessary not only to take into account its impact, but also to generate policies to counteract its effects.

Maritime industry affected by the virus

Since the Chinese economy is highly integrated into the global economy, the epidemic has had a broader impact on international supply chains.

China is not only the world’s largest exporter, it is also home to seven of the ten busiest ports and a major container shipping line.

At the beginning of the outbreak, the crisis in China led to the closure of shipyards, the activity in ports such as Wuhan where the virus emerged, was also affected.

Lower maritime transit rates

In this context, the global maritime industry faces lower than expected transit rates.

The Capesize index, which reflects freight costs of bulk commodity carriers, fell negative for the first time since 1999, meaning that shipping companies are losing on some routes and others are being suspended.

Some of the challenges facing the port and maritime industry:

  • Accumulation of cargo: the value of the goods accumulated in transit in a port or warehouse may exceed the accumulation limit allowed by the insurance contract.
  • Delays: Arrival of the shipment at the insured destination beyond the expected date of arrival could have financial implications for all parties involved in the shipping process.
  • Diversion: in the case of unsafe ports, the ship expressly reserves the right to divert to another port that is not described in the bill of lading.
  • Interruptions in transit: Cargo insurance contracts are designed to cover goods while in transit at the right time.

What does the International Maritime Organization say?

At the beginning of the pandemic, the IMO spoke of the need to maintain trade by sea and protect the well-being of the people.

“In these difficult times the transportation services to deliver vital goods, including medical supplies and food, will be critical to responding and ultimately overcoming this pandemic.” Kitack Lim. IMO General Secretary

Then in a statement, they urged cross-border agencies and governments to maintain efforts to facilitate shipping and maritime trade in these difficult times.

IMO calls to provide guarantees to crews

Maritime transport depends on the 2 million seafarers who operate the world’s merchant ships, which carry more than 80% of world trade by volume.

Crew changes are essential for the continuity of navigation in a safe and sustainable manner.

The maritime industry transports the world’s food, energy and raw materials, as well as manufactured goods and components, and is vital to sustainable development and prosperity.

Singapore as a hub for global shipping

This year despite the global economic crisis as a result of the pandemic, Singapore remained as the world’s leading shipping hub.

Its geographical location, as well as the ecosystem of the shipping industry, seem to be some of the reasons that give Singapore for the seventh consecutive year the first place in the Development Index of the Xinhua-Baltic International Maritime Transport Center.

This index provides an independent ranking of the performance of the world’s largest cities offering port business and shipping services.

Considering that 90% of world trade moves in containers, there is no doubt that the shipping industry plays a fundamental role in the development of the global economy.

On the world port stage, most of the market players are in Asia.

Transit remains despite the Covid-19

The crisis caused by Covid-19 influenced all the seaports in the world, Singapore due to its proximity to China, was one of the first ports in which maritime traffic was affected.

However, the statistics reflect some stabilization during the Q1 of this 2020.

Overall, Singapore managed to operate with a total of 53.08 million tons, which is 2% more compared to the same period in 2019.

The increase in container goods reached 32.53 tons, representing a slight increase of 1.5% compared to 2019.

The Port of Singapore

Before Shanghai snatched the position from it, the Singapore port was between 2005 and 2010 the first in the ranking of the most important ports in the world.

The history of this port dates back to 1819, when it was built to compensate for the island’s lack of natural resources, allowing goods to enter it.

Nowadays, the port of Singapore offers connections to more than 600 ports in 123 countries on 6 continents, with 130,000 ships passing through its docks each year.

It is also the largest transshipment port in the world, hosting around 20% of the world’s containers.

Port authorities are working on the development of the Tuas Port, currently Singapore’s largest port project, with its first berths to be operational in 2021.

When the project is finished in 2040, the Tuas Port is expected to be the largest fully automated terminal in the world.

Advantages of Maritime Transport

Maritime transport is capable of offering more competitive prices adapted to each form of shipping.

It adapts to the requirements of practically all types of product through the adjustments of the ships and containers.Despite being a slower means of transport, it is also one of the most sustainable on the market.

MAS urges banks to properly manage their capital

The Monetary Authority of Singapore called on national banks to moderate their dividends, from fiscal year 2020, to 60 percent to increase their lending capacity.

The Monetary Authority of Singapore urged local banks to limit their dividends from fiscal year 2020 to 60 percent.

They assured that this measure aims to allow national banks to maintain their capital and increase their lending capacity to companies or individuals.

In its statement, the Monetary Authority of Singapore pointed out that the world faces an uncertain scenario and that it is necessary to guarantee sustained loans in the city-state.

Banks will resist risks

It highlighted that in previous years, national financial institutions accumulated a large capital that will allow them to resist the risks that are coming due to the economic crisis cause by the pandemic.

“We are fortunate that banks in Singapore entered the COVID-19 pandemic with strong capital positions” said Ravi Menon, Managing Director of MAS.

In addition to this, the Managing Director also called on all the national banks to properly maintain and manage their capital.

"Given the uncertainties that lie ahead and that global economies still show no signs of recovery, it would be prudent for local banks to reserve a larger share of profits during this period," he said.

The MAS assured that this initiative will strengthen the capacity of all local financial entities to continue supporting the credit needs of companies and consumers.

As well as it considers that it will help to absorb the economic impacts in the event that a more adverse scenario materializes.

Unemployment rate increases in Singapore

According to data from the Singapore Ministry of Manpower, the unemployment rate stood at 2.9% in June. 

The unemployment rate in Singapore increased as a result of job cuts that happened between April and Jun Manpower e due to Covid-19.

The overall unemployment rate stood at 2.9% in June, the highest in just over a decade in the city-state.

According to data published by the Ministry of Manpower, the number of Singaporean unemployed increased to 79,600 in June from 66900 in March.

In the case of permanent residents, 90,500 unemployed were registered at the end of June, compared to 76,200 in March.

The Ministry of Manpower argued that the unemployment figure increased due to the wave of layoffs in this last quarter.

The sector with the greatest impact is the wholesale trade and transportation team as a result of the low demand for retail sales and air travel.

Unemployment situation “seems to not hit bottom”

The head of the Ministry of Manpower, Josephine Teo, pointed to a situation that seems not to have hit bottom yet and that in great measure depends on the actions of companies.

“I think it is reasonable for us to adopt a more cautious attitude, and that is to expect that it hasn’t bottomed out.” said Josephine Teo.

She added that food and beverage establishments may see an increase in consumer demand in the coming months.

However, she pointed that the volumes of the crowds will not be the same as the pre-pandemic due to health security measures.

Finally, Josephine Teo said that the outlook is uncertain not only within Singapore, and that the city-state is highly connected to the global economy, which currently has low demand.