Bumpy road, but Singapore has shock absorbers

Source : Business Times - 9 Aug 2008

PM Lee trims growth forecast to 4-5% but says Republic is holding its own

Brace for a bumpy year ahead, said Prime Minister Lee Hsien Loong in his National Day Message issued yesterday. Yet, the latest economic figures he unveiled yesterday were not as bad as some had feared.

Growth forecast for the full year has been trimmed as expected, but only by one percentage point at the top-end - from 4-6 per cent to 4-5 per cent. Less upbeat economists in the private sector had said it might be revised to the 3-5 per cent range.

For the first half of the year, the economic growth was actually 4.5 per cent, higher than the earlier flash estimate of 4.3 per cent.

‘Considering the external challenges, Singapore’s economic results are good,’ Mr Lee said.

Still, the revised growth forecast underlines the fact that the weakening American and global economy has finally hit Singapore. And Mr Lee predicted that the US difficulties sparked by the housing crisis would ‘probably drag on well into next year before getting better’.

Mr Lee’s message came a day after Finance Minister Tharman Shanmugaratnam warned that growth is unlikely to rebound ‘anytime soon’.

Sounding more downbeat than the official position so far, Mr Tharman said: ‘I don’t think we’re near the bottom yet, it’s something we’re all watching, especially the American economy. The American economy is in a much more perilous state now compared to just three or six months ago. The risk facing the financial system, which is a global system . . . is still very substantial.’

In his National Day Message yesterday, Mr Lee said that Singapore’s economy has so far not taken the full blow of the US economic slowdown, thanks to the vibrancy of the Asian region.

‘But Asian economies are starting to feel the impact of America’s problems, and so are we,’ he said. ‘We must therefore prepare ourselves for a bumpy year ahead.’

Mr Lee said that Singapore was in a strong position, but it must work together as a group with Asean to keep the region on the radar screen of investors, who are eyeing more the opportunities in China and India.

Singapore must also maintain its reputation in a turbulent region ‘as an economy that is competitive, a society that is cohesive and a government that is honest and competent’, according to him.

Mr Lee said that Singapore should look beyond immediate problems to discover new opportunities and tackle longer-term challenges. He listed three challenges - develop the economy, reproduce Singapore’s population and keep evolving Singapore’s system to stay in touch with the changing world.

‘Unless we create wealth, we will not have the resources to do anything else,’ he said. ‘Because we have pushed hard over the last few years when conditions were favourable, we can now look forward to many major projects: the Formula One Grand Prix, the integrated resorts and huge manufacturing investments like the world’s largest solar cell plant. These projects will create many good jobs, and keep our momentum up despite the uncertainties ahead.’

Mr Lee conceded that some government policies - like the goods and services tax and electronic road pricing hikes - contributed to the current inflation, but he defended them as essential.

‘Otherwise, we would not do them: the GST allows us to finance Workfare and other schemes to help lower-income Singaporeans over the long term, and the ERP keeps our roads free flowing,’ he explained.

‘I know that Singaporeans wish that prices did not have to rise, or that these policies were not necessary,’ Mr Lee said. ‘Unfortunately this is not possible. But we are doing the next best thing: to put in place effective relief measures, and provide the poor and needy with the help they need.’