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Singapore Braces for Globalization Backlash as Trade Fears Grow

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  • Singapore Braces for Globalization Backlash as Trade Fears Grow

Singapore, on track to post its worst economic performance since the 2009 global financial crisis this year, is bracing for more uncertainty as rising protectionism poses risks for the export-dependent nation.

While the government is forecasting economic growth of as much as 3 percent in 2017 — double the maximum it sees for this year — the city-state faces mounting global concerns that could affect trade, including financial market volatility following the U.K.’s vote to leave the European Union, the threat of debt defaults in China and the aftermath of the U.S. election.

“Political risks and uncertainties have risen, and could in turn lead to greater economic uncertainties,” Loh Khum Yean, permanent secretary at the Ministry of Trade and Industry, told reporters in Singapore. “An increasing backlash against globalization could further dampen global trade, which is already weak.”

U.S. President-elect Donald Trump won support by tapping into workers’ anger over job losses linked to globalization. He has pledged not to revive the Trans-Pacific Partnership, a free-trade pact signed by countries including Japan, Australia and Singapore, and to impose higher tariffs on China. Singapore is vowing to push ahead with TPP, Loh said.

The city-state Thursday cut the top end of its 2016 growth forecast to 1.5 percent from 2 percent and estimated non-oil domestic exports probably fell as much as 5.5 percent. The economy contracted an annualized 2 percent in the third quarter from the previous three months, the Ministry of Trade and Industry said in a report.

For next year, the government’s export forecast ranges between a 1 percent decline to a 1 percent gain.

“We find it hard to see the economy improving from this year, going into next year,” Brian Tan, an economist at Nomura Singapore Ltd., said by phone. “You have the protectionist stuff, European elections coming next year, so many risks, it’s hard for us to share the government’s optimism.”

The U.S. is Singapore’s third-largest trading partner, while China is the largest. Loh said Singapore is concerned about “rising corporate credit levels” in Asia’s biggest economy, as a sharper-than-expected correction in the real-estate market could lead to surging defaults in property-related loans.

While the U.K. is a smaller trading market for Singapore, uncertainty about Brexit negotiations could lead to bouts of volatility in financial markets and possibly a slowdown in growth in the U.K. and the euro area in general, Loh said.

Krystal Tan, an economist with Capital Economics Ltd. in Singapore, said she’s anticipating growth in the city-state of about 1.5 percent next year, even as exports stabilize. Borrowing costs, which are closely tied to U.S. interest rates, may rise and curb household and business spending, she said.

“It’s a bit surprising that they have the upper range of their forecast so high at 3 percent,” Tan said by phone. “I would expect the government to cut the top of the forecast gradually over the next few months.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Oil Prices Surge in Asian Trading on OPEC+ Meeting Expectations

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Oil prices surged during Asian trading hours on Wednesday amid mounting expectations that major oil-producing nations will uphold output cuts at an impending meeting of the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+.

Brent crude oil, against which Nigerian oil is priced, gained 18 cents, or 0.2% to $84.40 per barrel while the U.S. West Texas Intermediate (WTI) rose by 28 cents, or 0.3%, to $80.11.

The anticipation gripping traders and analysts alike centers on OPEC+ sustaining voluntary production cuts, which currently total about 2.2 million barrels per day.

Sugandha Sachdeva, founder of Delhi-based research firm SS WealthStreet, underscored the significance of this move, asserting that it would be perceived as a concerted effort to stabilize prices and rebalance the global oil market.

Sachdeva further elaborated on the factors bolstering oil prices, noting, “The onset of the summer driving season in the U.S. spurs a seasonal uptick in consumption and typically aids a positive momentum in crude oil prices.”

As the Memorial Day holiday heralds the commencement of the peak demand season in the United States, the world’s foremost oil consumer, the decision to maintain production cuts is poised to lend support to prices as consumption surges.

Daniel Hynes, senior commodity strategist at ANZ Bank, remarked on the robust holiday travel activity witnessed in the U.S., both on roads and in the air.

However, amidst the optimism surrounding the OPEC+ meeting, concerns over heightened tensions in the Gaza Strip added a geopolitical dimension to market dynamics.

Israeli tank advancements into the heart of the Rafah section fueled apprehensions about a potential escalation of conflict in the broader Middle East, a region critical to global oil supply.

Market participants also awaited the release of U.S. crude inventory data from the American Petroleum Institute later in the day, with preliminary expectations suggesting a decline of approximately 1.9 million barrels for the previous week.

Additionally, investor attention was drawn to forthcoming U.S. inflation data, set to influence expectations regarding Federal Reserve interest rate decisions and, consequently, impact oil prices.

The U.S. core Personal Consumption Expenditures Price Index report for April, scheduled for release on Friday, is projected to hold steady on a monthly basis.

Against this backdrop of anticipation and geopolitical tensions, the oil market navigates a landscape shaped by supply dynamics, demand prospects, and macroeconomic indicators, all of which converge to define the trajectory of oil prices in the coming days.

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Oil Revenue Decline Spurs South Sudan to Seek $250 Million IMF Assistance

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South Sudan is seeking $250 million in financing from the International Monetary Fund (IMF) to address its ongoing balance of payment challenges and stimulate economic growth.

The request comes in response to a significant decline in oil revenue, a crucial source of the nation’s income, following damage to a key pipeline.

The pipeline, which transports two-thirds of South Sudan’s crude oil, sustained damage in February.

Repairs have been delayed due to conflicts in neighboring Sudan, where the conduit passes through areas controlled by the army and the paramilitary Rapid Support Forces.

Also, a blockade on the Red Sea has further hampered oil exports, exacerbating the economic strain.

Bank of South Sudan Governor James Alic Garang, speaking at the African Development Bank’s annual meetings in Nairobi, emphasized the urgency of securing alternative financial support.

“We are facing severe challenges with our oil exports, which constitute about 90% of our revenue,” Garang said. “The impact on our economy is profound, reducing the volume of oil available for international markets and decreasing the hard currency inflow essential for meeting our obligations.”

Since 2020, South Sudan has received three rapid credit facilities from the IMF. These measures led to the initiation of a program monitoring with board involvement last year.

The first two reviews of this program were completed this month, with a third scheduled for November. After this, the government will seek the full quota of approximately $250 million.

Governor Garang highlighted that meeting the IMF’s policy requirements is crucial for securing the funds.

“We have already delivered an audit of the central bank’s financial statements for 2021,” he noted. “However, there are still areas where we need to intensify our efforts. With the IMF, there is no free lunch. We’re working very hard to meet those policy requirements.”

Efforts to increase non-oil revenue have been made, but they fall short of the country’s needs. The decline in oil production has significantly affected foreign exchange reserves, which can now only cover about two months of imports, compared to the IMF’s threshold of 3.5 months.

In addition to seeking IMF assistance, South Sudan is in discussions with Qatar for a resolution following a $1 billion court award to the Qatar National Bank over a defaulted loan. “We are negotiating to pay part of it, but we’ll still need to settle this debt,” Garang stated.

The $250 million from the IMF is expected to address several critical areas, including economic growth, inflation control, and the distribution of resources across the country.

It will also support essential sectors such as education and health, providing much-needed relief as South Sudan navigates through these economic challenges.

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Oil Prices Steady Ahead of Crucial OPEC+ Meeting on Output Cuts

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Oil prices stabilized in Asian trading on Monday as markets turned their attention to an upcoming OPEC+ meeting, where producers are expected to discuss maintaining voluntary output cuts for the remainder of the year.

This critical meeting, scheduled for June 2, will be held online following a brief postponement, OPEC announced last Friday.

The Brent crude oil, against which Nigerian crude oil is priced, stood at $82.36 a barrel, while the U.S. West Texas Intermediate (WTI) crude oil rose by 28 cents to $78 per barrel.

The stabilization in prices comes after a week of declines with Brent ending last week about 2% lower and WTI losing nearly 3%.

This downturn was influenced by minutes from the Federal Reserve’s recent meeting, revealing that some officials are open to further tightening interest rates if deemed necessary to control persistent inflation.

Market activity is expected to be relatively subdued on Monday due to public holidays in the United States and the United Kingdom.

However, anticipation is building around the OPEC+ meeting, where producers will deliberate on extending the current voluntary output cuts of 2.2 million barrels per day into the second half of the year. Sources within OPEC+ suggest that an extension is likely.

Sugandha Sachdeva, founder of Delhi-based research firm SS WealthStreet, expressed confidence in the potential extension, stating, “Oil futures are expected to maintain today’s gains due to expectations of the cuts being extended.”

She also highlighted the influence of upcoming U.S. Producer Price Index (PPI) data on market movements, which will shape the Federal Reserve’s approach to potential rate adjustments.

Combined with an additional 3.66 million barrels per day of production cuts valid through the end of the year, these measures account for nearly 6% of global oil demand.

OPEC remains optimistic about continued growth in oil demand, forecasting an increase of 2.25 million barrels per day for the year, while the International Energy Agency (IEA) anticipates slower growth of 1.2 million barrels per day.

Analysts at ANZ noted that they will be closely monitoring gasoline usage as the Northern Hemisphere enters summer, a peak season for driving holidays.

They commented, “While U.S. holiday trips are expected to hit a post-COVID high, improved fuel efficiency and EVs could see oil demand remain soft,” but added that this could be offset by rising air travel.

This week’s market dynamics will also be influenced by the U.S. personal consumption expenditures (PCE) index, due to be released on May 31.

The PCE index is regarded as the Federal Reserve’s preferred measure of inflation, and its findings could provide further indications of the central bank’s interest rate policies.

In a related development, Goldman Sachs has revised its forecast for 2030 oil demand upwards to 108.5 million barrels per day from the previous 106 million barrels per day.

The investment bank also projects peak oil demand to occur by 2034 at 110 million barrels per day, followed by a prolonged plateau until 2040.

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