Vigilance and Prudence Remain Key as Risks Persist in the Economic Recovery
On December 6, the Monetary Authority of Singapore (MAS) emphasised the need for continued vigilance in light of “considerable uncertainty” from the ongoing COVID-19 pandemic. The MAS acknowledged that while Singapore’s financial system has remained resilient due to strong government measures and robust economic recovery, the pandemic’s unpredictable nature continues to pose risks.
While the MAS expects Singapore’s economy to grow between 3-5% next year, it warned that global COVID-19 outbreaks, along with potential mobility restrictions, could disrupt economic activity once again. This could lead to further job losses and financial instability. Moreover, any global tightening of financial conditions could further restrict credit flow within the domestic economy, highlighting the need for prudence.
The MAS also cautioned that vulnerable households could face financial strain if external shocks materialise, despite a supportive macroeconomic environment. It advised households to remain cautious when taking on new debt, particularly given the expectation of rising interest rates. It noted that highly-leveraged households should focus on building financial buffers to withstand any potential downturns.
On the corporate front, the MAS reported that companies have seen improved earnings, although challenges remain due to uneven economic recovery. The central bank indicated that targeted support for viable firms affected by the pandemic may still be necessary, despite the withdrawal of broad-based assistance.
As for the financial sector, Singapore’s banks remain resilient, with healthy capital buffers and strong asset quality. However, the MAS warned that credit quality could deteriorate if economic disruptions trigger increased business insolvencies and unemployment. A stress test revealed that banks would be able to weather potential challenges from a resurgence in COVID-19 cases.
The MAS also highlighted emerging vulnerabilities, such as climate change and the growing prominence of crypto-assets, which could pose risks to financial stability. It urged close monitoring of these areas, noting that the shift to a low-carbon economy and the increasing use of crypto-assets may require adjustments in financial risk assessments.
