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Little cheer for Singapore’s economy despite lower oil prices: Analysts

Oil prices are seeing a slight rebound, but they are still at their lowest levels in over a decade. What does this mean for the Singapore economy?

Singapore: Lower global oil prices should stimulate global economic growth, according to the International Monetary Fund, which estimates that every US$10 fall in per-barrel oil price can lift global GDP by 0.2 per cent.

In particular, countries which are net importers of oil, such as Singapore, should benefit more from lower global oil prices. For example, when the oil price fell to below US$50 a barrel last January, electricity tariffs in Singapore between July 2014 and March 2015 were reduced by 9.3 per cent.



But now that oil has dipped below US$30 a barrel, and is hovering its lowest price levels in over a decade, initial cheer from energy cost savings appears to be turning into fear over a global economic slowdown.

Dr Walter Theseira, senior lecturer at SIM University explained: “Rapidly declining oil prices suggest that global economic growth is slumping. That in turn has an effect on the economy that extends beyond the oil industry … It’s the global economic slowdown (or the threat of it) that is causing economic disruption for us, and not the low oil prices themselves.”


Oil prices are wallowing at more than 12-year lows as the commodity comes under pressure from a worldwide glut, weak demand, overproduction and a strong dollar. (AFP/Adrian Dennis)

The current slump in oil prices has done little to prop up consumer spending and spur growth, according to CIMB Private Banking economist Song Seng Wun, “because the slump in global trade has overtaken the benefits of cheaper oil”, he said. Hit by slowing global demand, Singapore’s trade-dependent economy grew 2.1 per cent in 2015, clocking its weakest pace of growth since 2009.

“Last year for example, was one of the worst years for the petrochemical industry, even though the industry had the benefit of lower input prices. Due to low global demand, the firms over-invested and could not run at capacity,” said Mr Song.

DBS senior economist Irvin Seah thinks on the whole, lower oil prices are still a "marginal positive" for the Singapore economy, but warned that there are “non-quantifiable indirect effects that are exerting pain”. One such indirect impact can come through the weakening Malaysian ringgit, which has declined 12 per cent against the Sing dollar over the last year.

Mr Seah explained: “The Malaysian economy is highly dependent on oil, and the oil price situation has caused its currency to depreciate against that of key trading partners. This affects Singapore businesses, especially in cases where their Malaysian counterparts fail to make timely payments.”

Overall, some clear winners from lower oil prices could be consumers, and businesses in energy-intensive industries, such as aviation and shipping, which stand to gain from lower utility bills. Meanwhile, the losers include oil-related firms, like rig builders and offshore and marine companies, which have seen orders thin out in line with lower oil exploration activity.