June 27, 2019 / 08:57AM /
By Ravi Menon / Header Image Credit: EcoGraphics/ Finews asia
Speech For MAS Annual Report 2018/2019, MAS Annual Report 2018/19, Ravi Menon -
Managing Director, Monetary Authority Of Singapore, Remarks At MAS Annual
Report 2018/19 Media Conference, MAS Building, Singapore, 27 June 2019
morning. Welcome to MAS’ Annual Report media conference.
outlook for the global economy has deteriorated in recent months.
In April, the IMF
revised downwards its forecast for global GDP growth to 3.3%,
from 3.7% last October.
year at this time, at our annual report conference, I said that if the trade
conflict between the US and China escalates into a trade war, all three engines
of global growth – manufacturing, trade, and investment – will stall.
now in the throes of a trade (and technology) war, and all three engines have
manufacturing is in a synchronised downturn.
- Last month, the global
Purchasing Managers’ Index (PMI) for manufacturing fell to 49.8,
its lowest level in more than six years.
- In the
US, new orders are near their weakest levels in three years.
- In the
Eurozone, the downturn in manufacturing is even more severe.
China, the manufacturing PMI is in negative territory.
Asia, manufacturing output is contracting in about half of the economies,
trade volumes have declined for two quarters in a row – in Q4 2018 and Q1 2019.
- This consecutive two quarters
of contraction in world trade is rare.
last time this occurred was ten years ago.
investments have suffered from weakening business confidence.
- In Q1
this year, G3 investment growth moderated to 3.4%
on a year-on-year basis, from 3.7% last year.
- In the
ASEAN-4 economies, year-on-year growth in fixed investment spending has
pulled back sharply, to 3.1% in Q1 this year.
This is half the pace seen in 2018.
are three factors driving the current weakness in manufacturing, trade, and
- a downturn in the global electronics cycle;
- the lagged effects of deleveraging in
- the trade conflict between the US and
three factors, the trade conflict poses the biggest risk to global growth
in electronics production are a common feature and structural trends in
digitalisation and the Internet-of-Things should support a recovery
eventually in chip production in the next few years.
- As for
deleveraging in China, there has clearly been an easing of the policy
stance in recent months in response to the slowing economy.
trade impasse between the US and China drags on and further tariff measures are
imposed, growth in the second half of 2019 is likely to be weaker than earlier
estimates suggest that the direct impact of the tariffs that have been
introduced to-date would already shave off a cumulative 0.3%
points from global GDP growth over 2019-2020.
indirect effects on business and consumer sentiments and financial markets
are difficult to estimate. Some analysts believe these indirect
effects could be even larger than the direct effects.
impact of the trade conflict between the US and China will be felt across Asia
- through three key channels:
- disruptions in supply chains;
- slowdown in China; and
- firms holding back their capex plans.
tariffs imposed by the US on China are beginning to affect supply chains in
exports of tariff-hit goods to the US have fallen since the first tranche
of tariffs announced last June.
- This is
having knock-on effects on some firms in Southeast Asia which are deeply
enmeshed in production networks that are linked to China.
firms are adversely affected as producers switch to alternative suppliers
for essential parts and components.
there is talk of some Southeast Asian countries gaining from the diversion
of US imports from China, this appears to be the case only for Vietnam.
other Southeast Asian economies have not seen an increase in exports of
tariff-hit goods to the US.
slowdown in the Chinese economy is likely to have significant spill-over
effects on Asia.
- Economic indicators have
weakened across the board in China.
slower China will mean a slower Asia.
is Southeast Asia’s largest trading partner and a key source of investment and
uncertainty over trade could significantly hold back firms’ capex plans.
surveys of capex intentions point to a significant pullback in corporate
investment this year.
- This is
probably the biggest risk to Asia, given the region’s exposure to the
corporate investment cycle.
the tariff war, there is a new and unknown risk on the horizon – the broadening
of the trade dispute to the technology front.
- With global value chains,
production is distributed and technology dispersed over several countries,
industries, and products.
to restrict the supply of critical technologies could potentially lead to
significant disruptions in these value chains.
- Some of
these technologies are deeply embedded across multiple products and there
may be mutual dependencies across these products.
- We do
not fully understand the dynamics of these value chains and technology
- But it
is not difficult to imagine how restrictions on the use of key
technologies – like advanced semiconductors – can potentially disrupt
activities ranging from data centres to communications between network
disruptions to supply chains and economic activity could potentially be
even larger than from tariffs.
prolonged technology conflict could lead to a bifurcation of technology
downside risks have clearly increased, we should not over-react.
engines of manufacturing, trade, and investment have stalled, but the global
economy is not headed for a crash. Two other engines are providing
- easier monetary policies in the
major economies; and
in services and consumption.
policy in the US has turned more accommodative against the backdrop of benign
- The Federal Reserve has shifted
to a ‘wait-and-see’ stance and markets are expecting cuts in interest
has significantly loosened financial conditions, and bond yields have
fallen across the board.
- US GDP
growth for this year, projected at 2.5%, is still the strongest
among the G3 economies.
has eased fiscal and monetary policy significantly since late 2018.
- The Chinese government has
stepped up support for infrastructure investment.
are underway to enhance credit flows to small firms and private
- But the
effects of the stimulus will be somewhat restrained.
- The high level of indebtedness is likely to
constrain the scale of stimulus measures.
stimulus is unlikely to be able to prevent China’s GDP growth falling
below last year’s 6.6% but may be able to avoid a slippage below 6.0%.
consumption remains resilient in the major economies as well as in Asia,
underpinned by healthy labour markets.
- Unemployment in both the
advanced economies and in Asia is at low levels, and wage growth is
picking up gradually.
strong labour markets, household consumption is providing an important
support to global growth.
ASEAN, domestic demand has so far proven resilient to the slowdown in
services sector has continued to be resilient globally.
global services PMI averaged 53.1 in the first four
months of this year, similar to that for the whole of last year.
it fell to 51.6 in May.
- This is
perhaps an early signal that a prolonged period of erosion in global manufacturing
activity and investment will eventually have some knock-on effects on
bottom line: consumption and services will provide some buffer to global growth
but will not be entirely immune to persistent weakness in trade and corporate
Singapore economy is being clearly affected by the global slowdown in
manufacturing, trade, and investment.
economy grew by 1.2% in Q1 2019, compared to
3.1% for full-year 2018.
indicators suggest that growth in Q2 could be lower than in Q1.
domestic exports have contracted by 9.3% since the beginning of
manufacturing sector is in a downturn.
growth for the year as a whole is likely to be weaker than earlier envisaged.
- MTI and
MAS are reviewing the 1.5-2.5% forecast range for this year’s GDP growth.
in the first half of the year is looking to be quite weak, particularly in
the trade-related sectors.
the full-year forecast is premised on the economy stabilising in the third
quarter of 2019, with a modest pickup thereafter.
- But the
strength of this pick-up, given the softer external environment and
ongoing trade conflict, is unlikely to offset the weakness in the first
downside risks have clearly increased.
with the global economy, it is important to look beyond the headline growth
numbers and assess the composition of growth in the domestic economy.
year, Singapore’s GDP growth was driven by two engines – the trade-related
cluster and modern services cluster – with domestic industries flat.
- The trade-related cluster –
manufacturing, wholesale trade, transport and storage – grew 4.3%
and contributed 55% to overall GDP growth.
modern services cluster – financial, information and communications, and
professional services – also grew 4.3% and contributed 40%
to overall GDP growth.
in the domestic industries cluster – construction, retail and F&B,
health and education services – was negligible, mostly weighed down by the
slump in construction.
year, the trade-related cluster is decelerating, modern services is holding up,
and the domestic industries cluster is gradually recovering.
- The trade-related cluster will
continue to face the full brunt of the maturing of the global tech cycle
and growing trade tensions.
modern services cluster will be the main driver of growth this year,
supported by healthy regional demand and increased investments in
digitalisation as the domestic economy undergoes transformation.
industries will make a modest, positive contribution to overall growth, as
the construction sector turns around, and retail and F&B benefits from
firm labour demand conditions and efforts to lift productivity.
INFLATION AND MONETARY
in Singapore remains subdued and within expectations.
Core Inflation this year is expected to come in near the mid-point of the
forecast range of 1–2%.
- While there will be some
domestic cost pressures from firm labour market conditions, underlying
inflationary pressures should remain contained.
the slower pace of GDP this year is expected to close the positive output
gap. In recent years, GDP was growing faster than potential.
the fall in global oil prices in Q4 2018 and the deregulation of the
electricity distribution market have exerted a dampening effect on
the two rounds of monetary policy tightening last year by MAS will
continue to have a restraining effect on inflation.
Items inflation for the year is projected to be between 0.5 and 1.5%.
- Private road transport costs
could pick up slightly from 2018 with higher car prices more than
offsetting lower petrol prices.
costs are likely to decline, but at a slower pace this year.
inflation in Singapore remains well below the historical average.
monetary policy stance remains appropriate against the backdrop of subdued
inflation and weakening growth prospects.
year, MAS began the process of monetary policy normalisation by exiting from
the zero percent appreciation path of the nominal effective exchange rate
(S$NEER) policy band.
increased slightly the slope of the policy band in April 2018 and again in
October 2018, against the backdrop of healthy economic growth and
gradually rising inflation.
April this year, with inflationary pressures stabilising and the output
gap beginning to narrow, MAS kept the policy stance unchanged.
current stance of a modest and gradual appreciation path of the S$NEER
policy band will help to keep the economy close to potential and ensure
medium-term price stability.
risks to financial stability remain elevated, amidst high levels of
- In the
Eurozone, the large exposure of banks to government securities means the
risk of a sovereign-bank debt crisis remains.
- In the
US, corporate debt has increased by 30% since the Global
Financial Crisis, with a sizeable allocation of credit to highly-leveraged
China, the total leverage in the system is about 300%
of GDP, with high levels of indebtedness among local governments,
state-owned enterprises, and households.
Asia, there has been a surge in the issuance of foreign currency bonds,
denominated mainly in US dollars and concentrated in the real estate
leverage in itself does not suggest an impending financial crisis but, if
coupled with a sudden shift in investor sentiment, can lead to financial
potential triggers for such a sudden shift in investor sentiment are not
hard to find – escalation of trade tensions, disorderly Brexit, sharp
slowdown in China, or unexpected tightening of financial conditions.
Asia, the key risk is an abrupt reversal of portfolio flows and consequent
stresses on indebted corporates with large foreign currency liabilities.
financial system, corporate and household fundamentals remain sound.
most recent stress tests indicate that our financial system is resilient
to an adverse scenario of a severe global downturn as a fallout from
rising trade tensions.
said, continued vigilance is warranted.
households and corporates could face pressures on their cash flows and
hence debt servicing ability if the economy slows more than expected.
PROPERTY MARKET AND
July, the government took macroprudential measures to cool a property market
that was showing early signs of potential over-heating.
- In less than one year, between
Q3 2017 and Q2 2018, private residential prices had surged by 9%,
offsetting most of the gradual decline of 12% over
the preceding four years since Q3 2013.
was a real possibility that property price increases would once again run
ahead of economic fundamentals – as they did in the lead-up to 2013.
- If a
renewed property bubble were to form, it would risk a destabilising
correction later that would hurt households, businesses, and the banks.
risk was especially pertinent, given the strong pipeline of private
housing supply coming on stream over the next few years.
- This is
why, MND, MOF and MAS decided to act early and decisively to restrain the
have learnt from experience that preventing a bubble from forming is less
painful than deflating one that has fully formed.
measures implemented last year have helped to moderate the property market
- Since end-Q2 last year, private
residential price increases have eased significantly and average
transaction volumes have fallen by 30%.
for land tenders, in both the en-bloc sale and Government Land Sale
markets, have become sober.
government’s aim is not to depress property prices but to promote a stable and
- The government does not have a
target rate of increase for property prices nor can it manage the cycle
- But the
government does have a role to help ensure that price movements are broadly
consistent with economic fundamentals.
- In an
economy that is growing in nominal terms at 3-5%, it is not sustainable to
have property prices increasing at double-digits.
government will continue to monitor the property market closely and stands ready
to help ensure a healthy and sustainable market.
now move on to MAS’ financial operations. I will start with:
- how MAS
has been accumulating Official Foreign Reserves (OFR); and
- why MAS
decided to transfer part of its OFR to the Government; before touching on
financial performance and return of profit to Government.
has been steadily accumulating OFR, especially since the Global Financial
- Most of the period since the
Global Financial Crisis was characterised by extremely loose monetary
policies in the advanced economies, with interest rates near zero and massive
expansion of central banks’ balance sheets.
led to a surfeit of liquidity in the global financial system and large
capital flows to many emerging market economies.
- As an
economy with very sound fundamentals, Singapore naturally attracted quite
a large portion of these capital flows, which exerted sustained and large
appreciating pressures on our exchange rate.
- To keep
the S$NEER within its policy band, MAS had to intervene in the foreign
exchange markets to mop up these large and persistent capital inflows.
- In the
process, MAS accumulated a large stock of OFR.
foreign exchange intervention operations are essentially how we conduct
monetary policy – which is solely directed at securing price stability.
- This is
what we explained in our response to the US Treasury’s Report last month.
monetary policy is centred on the exchange rate because it is the best way
to secure price stability in a small, highly open economy.
manages the exchange rate as its monetary policy tool in the same way that
other central banks conduct monetary policy by managing interest rates.
central banks buy and sell government securities to affect liquidity and
attain their interest rate targets.
buys and sells foreign currency against the Singapore Dollar to keep the
S$NEER within its policy band.
- Just as
other central banks’ monetary policy operations cannot be construed as
interest rate manipulation, MAS’ foreign exchange operations cannot be
described as currency manipulation.
has been in active dialogue with the US Treasury to ensure that our monetary
policy framework and the role of foreign exchange intervention operations are
criteria the US Treasury uses is part of a generic framework that it has
developed to assess the policies of its major trading partners.
the assessment is unable to incorporate the unique characteristics of
individual countries, the US Treasury has indeed acknowledged in its
Report the uniqueness of Singapore’s exchange-rate based monetary policy
inclusion in the US Treasury Report has no direct consequences for the economy
or the conduct of MAS’ monetary policy.
will continue to manage the S$NEER as we assess to be appropriate, for
- We will
also continue to engage in constructive dialogue with the US Treasury to
explain the underlying structural factors which impinge on our current
account and MAS’ FX interventions.
sustained accumulation of OFR over the years meant that MAS’ stock of OFR was
in excess of what was needed to conduct our exchange rate-centred monetary
- MAS has
assessed that OFR equivalent to at least 65% of GDP
would provide a sufficiently strong buffer against stresses in the global
economy and financial markets.
OFR, at the end of Q1 2019, was more than 80% of
therefore decided to transfer S$45 billion from OFR to the
Government for investment on a longer-term basis with expected higher returns.
return, the Government will reduce its deposits with MAS by the same
means that MAS’ balance sheet will show a reduction in foreign assets of S$45 billion and an
equivalent reduction in its domestic liabilities to the Government.
made a net profit of S$19.2 billion in FY2018/19.
investment return from the OFR was S$26.2 billion. This
comprised foreign investment gains of S$25.2 billion,
and a small positive currency translation effect of S$1.0
factoring in expenses of S$3.1 billion from domestic
and other operations, MAS made an operating profit of S$23.1
billion. From that, MAS recorded a net profit of S$19.2
billion, after contributing S$3.9
billion to the Government’s Consolidated Fund.
investment return of S$26.2 billion in FY2018/19 is relatively high and
reflects mainly the effects of an increasingly larger OFR base.
the income from investing a larger stock of assets would be higher.
realised gains would also be higher, as a larger OFR base means a higher
turnover of securities for rebalancing and other portfolio
not expect investment returns to be sustained at these high levels as the OFR
base will now be smaller after the transfer of S$45 billion to the Government.
from a smaller portfolio will be less, and portfolio transactions are also
likely be fewer.
returned to Government the full net profit of S$19.2 billion and another S$16.0
billion from its general reserve fund, making a total of S$35.2 billion.
decided to return this amount to Government as a smaller OFR base would
mean that we need less capital and general reserves as buffer.
does not mean that the Government is getting S$45
billion and another S$35.2 billion.
return to Government increased its deposits with MAS by S$35.2
explained earlier, the transfer of S$45 billion of OFR to the
Government will reduce its deposits with MAS by S$45
conclude with a quick update on the financial sector.
various regulatory and developmental initiatives are detailed in the
annual report, so I will provide just a high level overview of the
2018, the financial services sector did very well, growing at 6.1%. 
brings the three-year average growth rate of financial services to 4.1%,
which is within striking distance of the Industry Transformation Map (ITM)
target of 4.3% per annum over 2016-20.
2019, financial services is expected to grow slower but should continue to
outpace the overall economy.
for financial intermediation are mixed, with credit demand weighed down by
a slowing Chinese economy, though loans to Southeast Asia are showing a
bit more resilience.
picture for insurance is more promising, on the back of growing demand for
insurance products catering to high net worth and mass affluent customers
in the Asia-Pacific.
in asset management will be lacklustre, weighed down by falling market
valuations and fee compression.
- The payments
services space should continue to thrive in line with continued expansion
of e-commerce activities, both locally and in the region.
activities should also continue to grow handsomely, boosted by ongoing
digital transformation across the financial sector.
more heartening than the growth numbers are the jobs numbers for financial
was a net increase of about 6,900 jobs in financial
services and FinTech in 2018, driven mainly by the banking and insurance
the last three years (2016-18), we saw an average of 4,900
financial services and FinTech jobs created on a net basis per year.
- This is
above our ITM target of 4,000 net jobs growth in
financial services and FinTech.
in the financial sector remains healthy so far this year and job growth is
on track to meet the ITM target of 4,000.
this rate of job growth will not be easy in the face of technological change
unless efforts are continually stepped up to upskill the workforce.
digitalisation and automation become more pervasive in the financial
industry, jobs will be transformed. Some will inevitably be
the financial industry, and our tripartite partners are taking this very
seriously and undertaking a variety of measures to help prepare the financial
sector workforce for a digital future.
year, more than 20,000 individuals – or
about one out of eight workers in the industry – went through
MAS/IBF-supported upskilling programmes.
financial institutions have stepped forward and committed to re-skill
close to 4,000 finance professionals and redeploy them in
new or expanded roles over the next two years.
- Some 1,700
of them have already started this journey, and 800
have successfully transited into new roles.
global economy has weakened and this is already affecting Singapore.
risks have grown, and some of these risks may have prolonged effects.
need to be alert but there is no need to be alarmed.
are pockets of resilience that should provide a degree of support to the
Singapore economy is in for a rougher ride but is well placed.
economic fundamentals are robust and policy buffers are healthy.
growth, digital transformation, and the resilience in modern innovative
services play to Singapore’s strengths.
external headwinds will slow Singapore’s pace of growth in the short term,
domestic economic restructuring is proceeding well and will enable the
economy to emerge stronger.
financial sector is a good example.
will be slower than last year given the sector’s exposure to the external
- But the
relentless effort by financial institutions to promote innovation, harness
technology, transform jobs, and upskill the workforce, will position the
sector well for the future.
will continue to closely partner the industry to make Singapore the
leading global financial centre in Asia, supporting the region’s growth
and creating good jobs for Singaporeans.
stop here and we will be happy to take your questions.
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