The rise in risk appetite and sharp rebound in financial markets since the start of the year may have outpaced economic fundamentals, according to the Monetary Authority of Singapore (MAS) in its annual Financial Stability Review on Monday.
The MAS noted that although Asia has bounced back from the financial crisis faster than expected, the global economic outlook remains uncertain.
This is because the nascent recovery in the world’s biggest economies – the United States, Japan and the European Union – has largely been dependent on government stimulus.
There is a risk that once these stimulus policies are withdrawn, their recoveries will take a hit, thus affecting Asian economies, especially those that are export-dependent such as Singapore.
If economic recovery stalls, corporate earnings may come under renewed strain and corporate refinancing may become more difficult. MAS added that unemployment could also rise if the economy slows again.
Despite such uncertainties in the global outlook, Singapore’s property market has taken on its own dynamic. Private home prices rose almost 16 per cent in the third quarter – the highest quarterly increase in almost three decades.
This has led MAS to warn that a speculative bubble could form.
MAS said although the government has already introduced several measures in September to temper the exuberance in the market and pre-empt a bubble, more measures might be needed.
But the nature and timing of such measures would have to be balanced against the still uncertain path of economic recovery.
On a brighter note, MAS said local banks and insurers have remained resilient through the crisis, maintaining high capital and liquidity ratios. It added that local banks’ earnings have dipped but remained above market expectations.
This, together with successful capital-raising efforts during the crisis, should enable the local banks to absorb further credit losses in the coming quarters.
Source: Channel News Asia, 9 Nov 2009
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