Asian growth story will help it ride turbulence elsewhere, he says
PRIME Minister Lee Hsien Loong believes a US recession is likely, and in the event, Singapore and other Asian economies will not be untouched.
Fundamental valuations in Asia have not changed overnight. Whatever happens to America, China and India will continue to grow. This should give the region a boost.But he is confident that Singapore will weather the storm, and despite the global turmoil, Asia remains a dynamic market with abundant growth opportunities.
Addressing a breakfast meeting organised by MEDEF, the French Business Confederation on the final day of his three-day visit to France, Mr Lee spoke about the impact of this week's financial turbulence on Asian bourses, financial institutions and the real economy.
Despite the US Federal Reserve's unprecedented, out-of-session 75 basis point cut, and President George Bush's proposed fiscal stimulus package - which Mr Lee hopes will 'pass expeditiously and effectively within the next couple of months in Congress' - consumer and business confidence has been severely shaken.
Nobody can say if the measures will work, and 'it is entirely possible, indeed likely, that America will go into a recession', Mr Lee said. 'If it does go into recession, then we can be sure that Asia too will be affected.'
Virtually all Asian economies export to the US, and as the big selloff across Asian bourses this week shows, 'capital markets worldwide are closely inter-linked; we are not decoupled at all', he added.
'Looking ahead, I cannot tell you how the markets will perform, but it will be safe to say that they will continue to be volatile and that it will not come back to the situation it was before August last year.'
But fundamental valuations in Asia have not changed overnight, he pointed out, and 'whatever happens to America, China and India will continue to grow'. This should give the region a boost, he said.
Another positive for Asia - unlike the Western banks, most Asian banks have limited direct exposure to the US sub-prime market.
As for Singapore, 'our economy is completely open and exposed to global markets; there is nowhere we can take shelter', Mr Lee told the French executives, most of whom have business interests in Singapore.
But it has several positives going, not least a competitive economy that has drawn a flow of high-quality investment projects, including, from France, a REC solar plant and Soitec's 300mm wafer fab plant.
It has also in Asian emerging economies a market for its export services, and at home, a lineup of major international events and a full pipeline of construction projects.
'I am therefore confident that we are going to be able to weather this storm,' Mr Lee said, pointing out that the current instability is not like the 1997 financial crisis that was more systemic in nature.
For now, the Singapore government is maintaining its GDP growth forecast of 4.5-6.5 for 2008, which, while down from last year's 7.5 per cent, would not be a bad showing in the circumstances, he said.
Indeed, some easing will help to relieve supply constraints and ensure more sustainable growth over the medium term, he added.
'We will watch the situation closely, and update the forecast if necessary. We should not have a kneejerk reaction and lose our bearings in the middle of a dramatic market volatility.'
His parting shot for French businesses: Despite the present turmoil, Asia is a dynamic, growing market. Singapore itself is home to some 2,800 Chinese and 3,300 Indian companies, he told them.
'From Singapore, you can tap into this network of firms, and distribute your goods and services regionally and globally,' he said. 'Asean and Singapore can be your partner and business associate in this new Asia.'
Mr Lee later met former president Jacques Chirac, who led the Singapore delegation on a tour of the Musee du Quai Branly, a museum of non-Western artefacts that he is linked with. In the afternoon, Mr Lee flew to Davos for the World Economic Forum meetings.
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