By Sean Geary
According to a statement released by the country’s central banker, the Singaporean economy (EWS) continues to be adversely affected by European concerns. The question now is: Just how badly will Europe hurt this important Southeast Asian economy?
The Monetary Authority of Singapore said Thursday that a prolonged slowdown in the eurozone could bring growth in the Singaporean economy down to 1% for 2012. With rising housing and transportation costs bringing inflation to the 3%-4% levels, such a rate of growth could have considerable repercussions on the Singaporean economy.
As the Monetary Authority of Singapore attempts to slow inflation, growth concerns could be exacerbated going forward. So it has decided to strengthen reserves, as noted in its statement this week: "This is a pre-emptive measure to strengthen the authority’s capital and reserves, in light of a volatile financial market environment."
However, it’s probably not all doom and gloom for the Singaporean economy in the medium-term. The central bank also sees China (FXI) being able to navigate a soft landing. Considering the Singaporean economy depends heavily on China, this could help boost the economy, even with mounting European concerns. With a positive jobs situation and solid wage growth, Singapore is confident this will underpin private consumption.
For long-term investors, the Singaporean economy remains a solid bet. The country’s advantageous geography allows it to take advantage of growth in neighboring countries like Malaysia (EWM) and Indonesia (IDX). Its location also makes it a regional transit hub for both freight and passenger traffic. Recently built casinos have resulted in a substantial increase in tourism. Although a sizable housing bubble and increasing wealth inequality are worrisome, for long-term investors who are able to wait until Europe gets its act together, the bullish trends in the Singaporean economy outweigh the potential pitfalls.