Daily Update June 7, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Singapore Slows Down, But Resilience Remains

By some metrics, Singapore should be irrelevant. The country comprises an archipelago of small, humid islands off the southern tip of Malaysia with a population of 5 million people. Were it part of mainland China, Singapore would not rank among the 50 largest cities by population, according to some estimates. But tiny Singapore has turned its size, educated population and natural deepwater harbor into a permanent advantage. Singapore’s GDP grew 8.9% year over year in 2021 and rose 3.6% in 2022, while much of Asia experienced an economic contraction brought on by COVID-19-era lockdowns. Flexible in the face of geopolitical rigidity, able to pivot seamlessly between trading partners, and solicitous of its larger neighbors, Singapore remains resilient.

Singapore’s economy has shown signs of slowing in early 2023. Manufacturing output in the first quarter contracted 4.8% year over year given declines in the electronics, chemicals and biomedical industries. Exports of electronics to China have remained frustratingly weak, down 23% year over year, as the recovery of the Chinese economy has been unexpectedly lackluster. Inflation remains worryingly high at 5.7%, which may trigger further interest rate increases from the Monetary Authority of Singapore. Across Asia, commodity prices have been declining, which is challenging for export-dependent Singapore.

However, Singapore’s economic cloud enjoys several silver linings. Transport engineering was up 14.5% year over year in April, aerospace engineering was up 16.1% and tourism had bounced back, with the accommodation segment up 21.9%. While GDP growth is forecast to slow to 1.8% in 2023, there are signs that demand from China is improving, and the medium-term prospects for Singapore’s world-leading electronics industry remain strong. Singapore’s banks have enjoyed continued profit momentum, giving the country’s financial institutions breathing room to focus on asset quality.

"Singapore banks' profitability continues to be driven by robust interest income from core lending businesses, while credit costs and expenses remained contained," according to Ivan Tan, director of financial institution ratings for South and Southeast Asia at S&P Global Ratings. 

Even demand for premium office space, which has weakened globally due to hybrid working, remains resilient in Singapore. Warehouse demand in Singapore has also stayed healthy. As global manufacturing switches from “just in time” to “just in case” inventory strategies, warehouses in the export-dependent country are filling up with additional goods.

The biggest threat to the continued economic strength of Singapore is demographics. One-sixth of Singapore’s population is over the age of 65, but that is expected to rise to one-quarter of the population by 2030. An aging population will create additional economic burdens with rising healthcare and social welfare costs. Regardless, Singapore will remain a global manufacturing and trade powerhouse that punches far above its weight.

Today is Wednesday, June 7, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

Global Growth At One-And-A-Half Year High In May As Demand For Services Continues To Revive

Global growth hit the fastest for a year and half midway through the second quarter, according to the S&P Global PMI surveys based on data provided by over 27,000 companies. All major economies reported robust growth, in all cases bar India and Russia seeing service sector growth outperform that of manufacturing. While manufacturing suffered a further loss of new orders, led by a steepening downturn in global trade flows, demand growth for services accelerated amid a record rise in exports.

—Read the article from S&P Global Market Intelligence

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Capital Markets

Credit FAQ: Can GCC Banks Weather Funding Risks?

Funding risk is a prominent topic among investors in GCC banks, particularly as we transition from cheap and abundant liquidity to a more restrictive environment. Major central banks have made it clear that interest rates will be higher for longer, meaning liquidity will be scarcer and more expensive. This could significantly affect banking systems in emerging markets. In this article, S&P Global Ratings responds to key questions from investors on the vulnerability of Gulf Cooperation Council (GCC) banks to funding risk and mitigating factors.

—Read the report from S&P Global Ratings

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Global Trade

World Sees China As Potential Coal Destination Amid Oversupply, Fragile Demand

The oversupply of coal globally and continued subdued demand have pushed sellers and traders from exporting nations to bank on China, the world's largest consumer, to absorb excessive volumes, an analysis by S&P Global Commodity Insights showed. While China and India have largely been relying on domestic production to meet their requirements, overstocking in Europe and lower-than-expected winter demand drove the continent to nearly stop coal imports in Q1 2023. As a result, global exporters have been flocking to the high consumption regions in Asia, creating more supply in the region which is already stuffed with coal from Indonesia, Australia, Russia and South Africa.

—Read the article from S&P Global Commodity Insights

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Sustainability

Where’s Your Carbon Gone? How The S&P PACT Indices Decarbonize

As the world aims to decarbonize toward a net zero future, the importance of tracking the carbon footprint of portfolios is becoming a primary focus for many investors; specifically, to measure and understand whether portfolios emulate the emission reduction targets needed globally to help mitigate the impacts of climate change.

—Read the article from S&P Dow Jones Indices

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Energy & Commodities

Listen: It's A Bumpy Road Ahead For North American Electric Reliability Amid Energy Transition

Up to two-thirds of North America is at an elevated risk of electricity shortfalls this summer in extreme conditions with a high load and high outages, according to the North American Electric Reliability Corporation. Conventional plants are retiring faster than the needed transmission and generation can be built, and there are questions about whether the natural gas system is up to the task of supplying fuel to gas-fired generators needed for reliability. S&P Global Commodity Insights' Kate Winston, a senior editor for Americas power news, discussed reliability with John Moura, the director of reliability assessment at NERC. Joining the discussion were Mason Lester, a senior research analyst with SPGCI, and Daryna Kotenko, the team lead for North American power pricing at SPGCI.

—Listen and subscribe to Commodities Focus, a podcast from S&P Global Commodity Insights

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Technology & Media

Battery Next: Metal Supply Concerns Push EV Makers To New Battery Chemistries

Automakers are deploying alternative battery chemistries to avert supply disruption as rising demand for electric vehicles taxes the world's capacity to mine the minerals critical to the clean energy transition. Materials such as lithium, cobalt and nickel are essential to the lithium-ion battery chemistry typically found in EVs, but they are also limited in available supply, and some are fraught with ethical and environmental sourcing concerns.

—Read the article from S&P Global Market Intelligence

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