Bracing For Tougher Times Ahead

Source : The Business Times, April 23, 2008

ECONOMISTS read in the Monetary Authority of Singapore's (MAS) surprise decision two weeks ago to strengthen the Sing dollar an indication that inflationary concerns loomed large over downside growth risks, even as the global outlook grows cloudy with recession in the air.

While the Singapore economy got off to a robust start (though the final first-quarter growth may well be revised down from the 7.2 per cent flash estimate), gross domestic product (GDP) growth is widely expected to ease in the months ahead. The big question is - by how much, as the US economic downturn winds its way to Singapore and the rest of Asia.

For now, the prognosis remains an optimistic 'minimal hit' scenario with regional resilience and demand expected to offset much of the decline in the Western markets. The Singapore economy's growth is expected to remain within the trend potential rate of 4-6 per cent in 2008. But MAS did note: 'A more severe global downturn cannot be ruled out if there is a further escalation of the financial crisis in the US. If this occurs, Singapore's growth will be adversely affected.' And Government of Singapore Investment Corporation (GIC) deputy chairman Tony Tan - who in January said that his biggest worry for 2008 was inflation - has just warned about the impact of the world's deepest recession in 30 years, if policymakers in the US and other major markets do not take decisive and timely action to calm investors' nerves, improve sentiment and restore some market stability.

Hopefully, the necessary decisions and actions will not be derailed or otherwise impaired by the fact that there will be a changeover soon in the White House. And one would hope that the three presidential aspirants are giving the matter of global financial and economic stability some thought, despite their current preoccupation with domestic issues.

For Singapore and the rest of Asia, it's best to be prepared for rough times, even if the domestic economy manages to grow at a reasonably respectable rate.

It's when the chips are down that true colours show. Singapore, with its strong economic fundamentals and political stability, has mostly passed this test in recent crises. But the battles ahead could be tougher. Apart from facing a dramatically weaker global growth environment, Singapore will also face a host of keen rivals when it comes to attracting investments, from both the developed and developing world.

In 2003, Singapore was ranked as the world's best place to do business by the Economic Intelligence Unit. But the latest rankings see Denmark and Finland on top, with Singapore down to third place. Not a bad position to be in, but the change in ranking is a sobering reminder that the world has become increasingly competitive. In the recessionary environment that looms ahead, this will be even more true.