Reasons why it won't be like the 1997 financial crisis
LIKE the bearish investors who have been stalking financial markets in recent weeks, Prime Minister Lee Hsien Loong believes that a recession is looming in the world's largest economy, the United States.
Still, Mr Lee is hopeful that the policies implemented earlier will provide buffers for the Singapore economy should a US recession come to pass.
"I'm confident that we're going to be able to weather this storm. This is not like the 1997 financial crisis and we got through that," Mr Lee told a group of 40 businessmen yesterday during a breakfast meeting hosted by the French Business Confederation (Medef).
A slowdown may also be the very thing needed for Singapore right now. Said Mr Lee: "If we have to ease this year, there may be some silver lining because it may relieve some supply constraints which have built up — manpower shortages, land shortages — and ensure more sustainable growth over the medium term."
It was the first time that the Prime Minister was giving his take on the current market chaos, since the United States Federal Reserve dramatically slashed interest rates and President George W Bush proposed an economic stimulus package.
Will the measures work wonders for the US, where massive losses linked to subprime mortgages have shaken major banks and investor confidence?
That is anyone's guess.
But in Mr Lee's view, "it is entirely possible and likely that America will go into recession", which is technically defined as a fall in economic growth for two straight quarters.
Once that happens, Singapore will certainly take a hit.
"Ours is a totally open economy, completely exposed to global markets. There is no way you can shelter from the wind-chill," he said, adding that external trade is a whopping 3.5 times that of domestic demand while the US alone buys 15 per cent of Singapore's non-oil exports every year.
In fact, when Uncle Sam sneezes, the whole of South-east Asia may catch the worst chill, according to Mr Steven Dunaway, the International Monetary Fund's deputy director for the Asia and Pacific department.
This is because if the US imports less, South-east Asian countries may face "extra competition" from China, which could slash prices in order to compete for a slice of the smaller pie.
Mr Dunaway predicted that a drop of one percentage point in US growth would shave 0.5 to 1 percentage point off Asia's growth.
However, some in the region may not feel as much pain. Mr Lee has China and India in mind:
"Whatever happens in America, they (China and India) are going to continue to grow. Their momentum is considerable … the domestic demand has been very robust," he said.
That resilience will be Asia's pillar of strength.
At the same time, Singapore can count on some pluses at home, said Mr Lee, who maintained the official growth forecast of 4.5 to 6 per cent this year.
First, years of restructuring the economy have boosted competitiveness, helping to draw in a strong flow of high-quality, new investments that will create jobs and growth in coming months and years. Examples he cited include a $6.3-billion plan by Norway's Renewable Energy Corp to build the world's biggest solar cell plant in Singapore.
Second, the services industry will be bolstered by an upcoming string of mega projects, such as the two Integrated Resorts and the Formula One night race in September.
Together, these factors give the Prime Minister hope. Sure, Singapore's economy is likely to decelerate this year after last year's stellar 7.5 per cent. But a slowdown would mean a pace that is more sustainable, Mr Lee said, as the Republic has enjoyed four consecutive years of above-trend growth since 2004. Analysts expect a mature economy such as Singapore to expand at around 3.5 per cent annually.
Mr Lee's bottom line to French businesses: Regardless of the present financial instability, opportunities remain in Asia.
After the breakfast meeting, the Prime Minister met former French President Jacques Chirac to go on a tour of Musée du Quai Branly, the primitive art museum started by Mr Chirac in 2006.
Earlier on Monday, Mr Lee also held talks with other French leaders such as President Nicolas Sarkozy and Prime Minister Francois Fillon.
From Paris, Mr Lee yesterday made his way to Davos, the Swiss ski resort town hosting the World Economic Forum's annual meeting, which is expected to be dominated by America's economic woes.
(Quote lift can use if there's space)
"We're not going to come back to the situation before August last year, where risk was under-priced and there was a remarkable ebullience, which could not be repressed despite many people realising that things could not continue indefinitely." – Mr Lee Hsien Loong
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