SINGAPORE is not immune to a slowdown in major industrial economies, and while the risks from the United States sub-prime mortgage problems “have increased”, it is not clear that there has been significant spillover into the real economy, Minister of State for Trade and Industry S Iswaran said yesterday.Speaking in Parliament, he said it was “too early to assess” the impact of the subprime crisis on the US and European economies, even as concerns grow that uncertain financial markets could lead to a loss of confidence and tight credit conditions.
“This will in turn hurt investment and consumption in the US and Europe. If growth slows in these major economies, Singapore will be affected,” he said, in response to queries by Jalan Besar GRC MP, Dr Lily Neo.
Singapore’s open economy may be subject to “significant impact” through a credit squeeze and other effects, but it is mitigated to some extent by the diversification of the economy, he said.
Problems with US sub-prime mortgages or housing loans to borrowers with poor credit history — which global investors have invested in — have roiled world financial markets in recent months. That has also led to a liquidity crunch in some countries, sparking concerns of a global economic slowdown.
Mr Iswaran said the Ministry of Trade and Industry’s forecast of 7- to 8-per-cent growth for the year remains unchanged.
Still, restoring confidence to financial markets is key, he said, adding the Monetary Authority of Singapore (MAS) has been closely monitoring the banking system and stands ready to inject liquidity if necessary.
Second Finance Minister Tharman Shanmugaratnam said the MAS would do so if there were a systemic shortage of liquidity in the market, or “systemic crunch” which has not been the case so far.
“In fact, MAS has not had to do anything extraordinary, beyond its normal money market operations,” he said.
Separately, Minister for National Development Mah Bow Tan said there has so far, been “no sign of a negative impact” from the sub-prime crisis on the property market, which is driven by economic fundamentals. As the Government funds public housing loans, its credit assessment and restriction for each household to own only one HDB flat also help provide stability in the public housing market, he said.
Economists mostly agree with the Government’s prognosis. CIMB-GK regional economist Song Seng Wun said chances of the sub-prime crisis leading to a systemic risk in our banking system is low, as banks here and in the region have been significantly strengthened after the Asian financial crisis.
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