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Hard landing of China's economy may affect S'pore more
Publication Date : 10-09-2013
Singapore would suffer more from a hard landing of China's economy than even China itself, a new report predicts.
However, the effect would be likely smaller than the toll on Singapore from the 2008 global financial crisis, said the report released on Monday by Moody's Analytics.
Electronics, foreign trade and real estate are likely to be the sectors most affected.
The prospect of slowing growth in the world's No. 2 economy has loomed large in global markets ever since Beijing unveiled economic restructuring plans.
China's economy grew 7.5 per cent in the three months to June, slower than the 7.7 per cent pace seen in the first quarter of the year.
The official growth target for the full year is 7.5 per cent - the weakest pace in 23 years.
The report defines a Chinese "hard landing" as a drop in gross domestic product (GDP) growth below 3 per cent next year.
This would have spillover effects across the global economy. United States GDP growth, for instance, would be cut by 2.5 percentage points, the report said.
Under these assumptions, Singapore's GDP would shrink 3.3 per cent in late 2015.
While Singapore would be one of the most affected Asian economies, the impact would be less severe than that created by the global
financial crisis, when output fell 9.7 per cent in the first quarter of 2009, the report noted.
The decline would be driven mainly by slowdowns in exports and investment, as well as sectors especially attuned to China's business cycle - such as real estate.
Within goods-producing sectors, manufacturing, specifically electronics, is likely to suffer most, and pharmaceuticals would be least affected.
However, in view of improving economic data over the past two months, a hard landing in China appears unlikely, said OCBC economist Tommy Xie.
If the Chinese economy slows more than expected, the indirect impact on business sentiment in the region might turn out to be more damaging than the impact on trade flows, he added.
"If the Chinese economy slows down dramatically, it will affect sentiment in the whole region and may also affect how foreign investors view Asia as a whole... for instance, one of the key triggers for the capital outflow out of Asia in May was concerns over a hard landing in China," said Xie.