Long-term prospect ‘fabulous’, but 2009 looks gloomy

Source : Business Times - 7 Nov 2008

British Chamber spokesman paints the big picture for Singapore

THE long-term outlook for Singapore is ‘fabulous’ but 2009 is likely to be a miserable year economically, said Roman Scott, economic spokesman for the British Chamber of Commerce.

In a luncheon presentation yesterday, Mr Scott painted a bleak picture of global growth, but reiterated his confidence that Asia will bounce back stronger.

‘I remain a long-term secular Asian bull. In the mid- to long term, (the crisis) accelerates the secular shift of economies towards Asia,’ he said. While open and export oriented economies such as Singapore will be hit hard, domestic consumption in countries such as China is expected to provide a fresh engine of growth.

‘Singapore is very very vulnerable; it’s a canary in a coal mine. It will be the first to pick itself up when things get better . . . The Singapore story is fundamentally intact and will be fabulous in 2015.’

Still, Asian economic data for the third and fourth quarter this year is expected to be weak. ‘Asian banks may hold very little of the sub-prime toxic debt, but the resultant damage to the interbank and those human things - trust and credibility - that are essential ingredients of the banking system, has affected Asia equally.’

On the global economy, he said IMF forecasts have been consistently over-optimistic in downturns and pessimistic in upturns. IMF forecast for 2009 has been revised downwards to 3 per cent, the slowest pace since 2002.

Mr Scott believes that global growth will actually slip to a ‘recessionary’ level of 2 per cent. ‘The only question that remains is for how long this will last. Given my comments on why systemic banking crises leave the fires burning far longer than the standard cyclical recession, a two-year period is a minimum, not a maximum, and that would be lucky,’ he wrote in a paper.

Asia is expected to bounce back earlier, within 18 months.

A banking crisis, he maintains, differs markedly from normal cyclical recessions. ‘This is a heart attack, not a fall, and hearts are difficult to get started again . . . This is what happens when the trust that underpins the system disappears and credit is severely restricted.’

For businesses, he said plans should be stress tested against two to three scenarios. ‘Smaller enterprises will be particularly vulnerable and should plan cash flow to ensure that a year’s requirements for cash is available, and if not it is time to liquidate assets to get to that point.’