GDP growth shrinks to 1.5%, focus on saving jobs

Prepare for tough year ahead with no quick turnaround in sight: PM Lee

With the economy likely to contract further and more layoffs expected in the months ahead, Prime Minister Lee Hsien Loong has urged Singaporeans to brace for a difficult 2009, especially the first half.

GDP growth plunged to just 1.5 per cent in 2008 - down from 2007’s 7.7 per cent pace and a full point below the November estimate of 2.5 per cent. It’s also below what seemed to be the more bearish forecasts - of around 1.7 per cent.

With the economy in recession and faced with a ‘highly uncertain’ outlook, more companies will be forced to downsize, he said in his most sobering New Year message to date.

The 2008 growth pace - slowest since 2001 - indicates that the economy, contrary to earlier expectations, remained in the red for a second straight quarter in Q4 in year-ago terms. GDP growth in the first nine months of 2008 amounted to about 2.8 per cent.

Against the preceding quarter, Singapore’s GDP has been in decline since Q2 2008, as the slump in external demand extended beyond exports and the tourism sector to the broader economy.

Economists expect at least two more negative quarters through the first half of 2009.

That would spell a more severe slump than the last big downturn in 2001, when the economy suffered three periods of quarter-on-quarter contraction and four quarters of year-on-year declines.

The one certainty in the current global economic crisis is - things cannot turn around overnight, Mr Lee said. So there will be no quick rebound, but more likely several more years of slow growth.

‘We must therefore prepare for a difficult year ahead, and especially the first half of 2009,’ Mr Lee said. ‘Our economy will probably contract further. More companies will be forced to downsize. So far we have not seen many job losses, but I expect more retrenchments in the next few months. We must be psychologically prepared.’

The upcoming Budget on Jan 22 will focus on protecting jobs, Mr Lee said, promising more measures to keep viable companies afloat, including help with rental and wage bills. On top of recent initiatives, the government is also looking into further financing support for firms.

But there remain opportunities even in recession, Mr Lee pointed out. Hence the Budget will also see measures to build up new and long-term capabilities and hone Singapore’s competitive edge. There will also be moves to help companies build up their operations, and also encourage new businesses to grow.

While the Budget package will not restore high economic growth overnight, it should soften the impact of recession on Singaporeans and the economy, Mr Lee said.

And if more measures become necessary, ‘we have the resources, and the will, to do more to see Singapore through this recession’, he assured.

Compared to the 1997 Asian financial crisis, the current crisis is more difficult for Singapore to overcome because it is global, Mr Lee said. ‘Still, it will not last forever. After a few years, conditions will go back to normal, though we cannot expect a quick return to the boom years before the crisis.’

But it’s not all bleak. Investments in Singapore - while well below 2007 and 2008 levels - could still exceed S$10 billion this year.

Despite the storm clouds, Mr Lee said, Singapore has good reasons to be ‘quietly confident’, having upgraded and grown the economy during the good times, lived within its means and ‘patiently built up sizeable reserves’.

Source : Business Times - 1 Jan 2009