Accelerating global recovery boosts Asian exports, inflation risks contained; Singapore: Snag in succession points to deep weaknesses in political system

Highlights from the CAA Weekly Table:

• Global tax regime: There is a good chance of a global agreement that will prevent countries such as Singapore from using tax incentives to attract business headquarters.
• Asian economic policy – more vexing policy dilemmas across Asia. In China, pipeline inflationary pressures are growing even as consumer spending remains weak: more administrative measures appear likely. In India, the central bank faces challenges in calibrating policy while in Indonesia, the president’s support for changes to Bank Indonesia’s mandate has revived fears for the continued independence of monetary policy. Froth in the housing market raises the risk of macro-prudential measures in Singapore. In the Philippines, critics worry that the revised deal with a utility undermines the rule of law and makes attracting foreign investment even more difficult.

Accelerating global recovery boosts Asian exports, inflation risks contained

• The global recovery is gaining traction and feeding through strongly into more robust export growth in Asia. The forward-looking indicators for exports remain upbeat.
• One risk to Asia’s growth is that new virus variants spark off further surges in COVID infections – but this risk is likely to be contained as vaccines are rolled out and improved vaccines are introduced.
• A second risk to Asia is an unexpectedly strong revival in global inflation. However, we do believe the chances are low, so long as inflationary expectations remain well-anchored and the slack in the global economy and major labour markets persists. There is a growing risk though of an abrupt shift in Federal Reserve policy signals: we see a robust recovery making its ultra-easy policy stance increasingly untenable.

Singapore: Snag in Succession Points to Deeper Weaknesses in Political System

• The political succession in Singapore has been thrown into disarray following the abrupt decision by Deputy Prime Minister Heng Swee Keat to step down. Prime Minister Lee Hsien Loong has announced that he will stay on for longer than planned as it might take two to three years before a new successor is ready. Trade and Industry Minister Chan Chun Sing seems to be in pole position to emerge as successor. A cabinet reshuffle in 2 weeks’ time may make the relative standing of likely successors clearer.
• Strong political institutions and a consensual approach to politics provide considerable ballast to Singapore’s political stability. Nevertheless, the latest development reveal weaknesses in the political set-up which have raised political risks.
• In essence, Singapore’s highly controlled political system may not have adapted to the changing rules of the game. The ruling party’s cadre members are less manageable than before while a more questioning electorate is pushing back more frequently against the government. The over-reliance on a narrow and select group of individuals at the highest echelons of power leaves the ruling party with little room for error.

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