Question

Section B (choose 2 of the following concepts for your report): (iv) Business cycles/unemployment/Inflation; (v) Fiscal policy; (vi) Monetary policy; (vii) International trade.

Answer 1

SINGAPORE’S recently eased monetary strategy & its fiscal strategy (taken together) are apt given current economic circumstances.

The government’s fiscal posture for 2019 is proposed to be ‘mildly expansionary’. But, whilst the Singaporean Budget tends to be slightly stimulatory, the size of the anticipated boost has eased.

‘This macroeconomic strategy mix is assessed to be apt given current economic circumstances,’ the central bank stated , whilst re-affirming that, ‘if the outlook for inflation & growth dwindle considerably, MAS would recalibrate monetary strategy’.

The recent, nearer-term evaluation came just days after the central bank pulled back on the tempo of appreciation of the Singaporean dollar in its 1st  monetary loosening in 3 years.

Singapore’s fiscal pulse , which gauges how governmental spending impacts the economy in the short-run has been pegged at nearly 0.4% of GDP for the year.

This figure ‘means a slightly more expansionary fiscal policy posture’ than in 2018 but is lesser than the estimate of 0.7% in the April macroeconomic assessment.

That is while, in the same period, the projection for full-year GDP growth has been cut to 0 - 1 % - down from the range from 1.5 % - 3.5% projected in April.

Present year’s expansionary fiscal pulse - which implies that the state has taken out less revenue stream than its spending, as compared to last year - follows proposals from a ‘longer-run sustainable growth’ Budget which the central bank noted were meant to augment productivity & address social inequality.

Since then, though, the output hiatus ‘has turned somewhat negative’, as the MAS observed in its monetary strategy statement in October.

The output gap, which is stated as a share of GDP, refers to the variance between the real GDP & the level of economic activity which can be backed without leading to unsound inflationary pressure.

This means that, the negative output hiatus points to an economy which is operating under its full potential. And the MAS anticipates the negative output hiatus to persist - weakening from a forecasted -0.46 % of potential GDP (in 2019) to -0.66 % in 2020.

Whilst a slowdown in Singapore’s trade‐associated sectors was anticipated, the degree of the downshift in activity in the past 6 months turned out to be more grave than was envisaged.

MAS managing director remarked that ‘it cannot be that every approaching slowdown/ threat has to be tackled by a relaxing of monetary strategy’, since fiscal measures also play a part.

Separately, above & beyond monetary loosening, some nations are already turning to fiscal stimulus to bolster growth, amidst fears of a broader contagion from trade & production weakness.

Such fiscal measures comprise proposals for climate change‐linked spending in Germany, infrastructural investment in Netherlands, a discount on electronic items in Japan, corporate tax cut-backs in India, & tax incentives for corporations & households in China.

Despite the resort to expansionary macroeconomic strategy in nations elsewhere, the MAS has forewarned that ‘constraints like policy space, financial stability & debt sustainability matters could cap the stimulus to these countries’.

Still, main distinctions between Singapore & other countries involve the central bank's utilization of the exchange rate, rather than ROI, in monetary strategy, as well as its fiscal headroom with regard to its minimal debt constraints, sufficient reserves, & surpluses from past national Budgets.