Long-term deflation could harm consumer psychology and investor sentiment

Year: 2020

Building on the Ministry of Trade and Industry and the Monetary Authority of Singapore’s press release on consumer price developments in July 2020, FMG CEO Devadas offers a projection on Singapore’s economic direction, warning on a deflationary trend ahead:

“Singapore’s economy is on a deflationary track despite the extraordinary 5 Budgets (counting the recent $8 billion extra spending announced, which is really another off-cycle Budget).

As these measures are tapered off through the remainder of 2020 and 1H2021, if global growth remains subdued to the point of neutral or negative growth and Singapore’s connectivity remains constrained (it is notable that while Singapore has announced “Green Lanes”, these are not reciprocal arrangements and none are with our major trading partners), then we will enter the lose-lose condition of deflation and contraction.

It is not possible to spend one’s way back to growth so fiscal measures are limited to support and not truly catalytic, at least in the short term.

Deflationary conditions, if protracted, have the propensity to become sticky and have a longer-term inertial effect which then infects consumer psychology and investor sentiment.”