Economy may slow for ’several quarters’

Source : Straits Times - 6 Oct 2008

But strong fundamentals will see Singapore past global crisis: Tharman

HEAVILY exposed to the global economy, Singapore will see an economic slowdown that could last ’several quarters’, not just one or two quarters, said Finance Minister Tharman Shanmugaratnam yesterday.

In tandem, unemployment is expected to increase.

But he also sounded a note of optimism, saying with its strong fundamentals, Singapore will ride out the crisis - and emerge better than most countries.

Mr Tharman was addressing some 300 grassroots leaders and residents of Toa Payoh East, after a three-hour walkabout which saw him, among other things, opening an exercise corner for the elderly.

Accompanied by MPs from the Bishan-Toa Payoh GRC, including Mrs Josephine Teo, it was his first ministerial walkabout since taking charge of the finance portfolio this year.

During the 80-minute dialogue that followed, residents asked 13 questions covering topics from foreign talent to greater rewards for grandparent caregivers.

But the focus was on the darkening economic outlook amid increasingly gloomy news from the United States - and the world - on what some have termed ‘the worst financial crisis since the 1930s’.

So grassroots leader Raymond Teo, 39, wanted Mr Tharman’s opinion of the US$700 billion (S$1 trillion) package to bail out troubled financial institutions in the US, and how it impacts Singapore.

The minister expressed relief that the US Congress had supported the package, as it is a step forward.

But it is ‘not a full solution’ in addressing the real malaise: shortage of capital in the banks, he noted. This, the new US President would have to work out when he takes over in January.

And because the problems are ‘deep and extensive’, it will take ‘a year or two’ before the world emerges from the crisis, he later told reporters.

Meanwhile, the crisis has moved into what he calls ‘its second phase’.

‘It’s no longer just a financial crisis,’ he said. ‘It is now an economic crisis.’

Growth is slowing in the US, Europe, Japan, and even China and India, he noted. ‘So globally the economy is slowing down. This is a fact we cannot escape.’

Thus, Singapore ‘will see an economic slowdown which, from all indications, will last not just one or two quarters, but may last several quarters, because we’re heavily exposed to the global economy’.

But he stressed that Singapore is armed with strengths that will see it safely through the crisis.

First, the unemployment rate is low.

So while fewer jobs will be created in the next few quarters, the starting level is ‘much lower’ than most countries.

Second, Singapore has a diversified economy.

‘Some sectors are still doing well,’ he said, citing marine engineering, construction and manufacturers of high-value products. Even in the embattled financial services industry, wealth management and private banking are doing well.

Third, the Government is in a strong fiscal position, ‘and we’ll be able to take the necessary actions if the situation turns much worse’.

He said: ‘Frankly, it was just as well we decided not to spend all the surplus that we earned last year.’ Part of it was given to Singaporeans as Growth Dividends.

‘This crisis shows the merits of thinking not just short-term but medium- to long-term,’ the minister added.

Exuding confidence about the country’s strong fundamentals, he told Singaporeans to keep their eye on the medium- to long-term future, as the short-term problems can be dealt with.

‘If we keep our focus on education, continuous training, and attracting new investments and new industries here - which is what we’re doing - Singapore will continue to do well.

‘So we’ll ride through the down cycle …I feel we’re going to come through it better than most countries - not just in the region but even most developed countries.’

Asked for the full-year economic growth forecast, he said the Trade and Industry Ministry will reveal the numbers on Friday. Trade and Industry Minister Lim Hng Kiang had warned growth might dip ‘a bit below’ 4 per cent this year.

One resident, technician Ali Khan, 43, said he was assured by Mr Tharman’s replies, as he and his friends had been worried about their job security.

‘It gives me some confidence that despite the downturn, we’ll be all right in the long run.’