Friday, December 5, 2008

No Global Depression: PM

Source : The Straits Times, Dec 5, 2008

A FINANCIAL storm may be sweeping across the globe, but Prime Minister Lee Hsien Loong does not see it as a precursor to a next great depression as happened in the 1930s.

'Singapore must be prepared for several years of slow growth,' said Prime Minister Lee Hsien Loong. -- PHOTO: ZAOBAO

'I think that global depression is not on the cards. Governments have learnt the lesson of the 1930s and they will not repeat the same mistakes,' he said in comments to members of the Foreign Correspondents' Association at a lunch talk today.

'So this is not the end of the world.'

He was responding to a question on how long the current recession will last.

'The recession, to the best of the experts' judgment, may last a year, maybe if we're lucky, three-quarters (of a year),' he noted.

'But the recovery from the recession is likely to be weaker than from previous recessions and we must be prepared for several years of slow growth.'

Mr Lee, however, pointed out that experts have been wrong many times in the last few months and they could be wrong again.

Earlier, in his opening remarks at the lunch talk, Mr Lee noted that governments had been improvising, 'making policy on the fly, venturing into uncharted territory, throwing every possible measure into the mix to try and restore confidence, restore stability, maintain employment and get growth going again'.

He said that while the financial markets appear to have stabilised for now, they are far from being back to normal.

'The real economies have been affected by the turmoil and they are now going into severe recession, and the real economies' problems are just (beginning). In a globalised world none of us can be immune.' he said.

The biggest impact on the world economy would be how the situation develops in the United States. China and India were also important.

China has had a 4-trillion yuan (S$886 billion) package of fiscal measures and keeping its economy going 'will be a plus for the rest of the world'.

'But the impact of China and India on the world economy are orders of magnitude smaller than the impact of the US economy on the world economy,' he said.

'The Chinese package, for example, is about US$500 billion. And there was one estimate that of this, its impact on the rest of the world is something like US$50 billion - helpful but it's not going to make a difference.'

In Washington, US President-elect Barak Obama has acted and was 'ready to hit the ground running'.

'He's assembled the strongest possible economic dream team. He's got Paul Volcker, he's Larry Summers, he's got Tim Geithner. They will do their utmost to moderate the downturn, restore confidence and put the country on the road to recovery.

'And for good measure, also strengthen and stabilise the growth of the financial system.'

Still, Mr Lee said that even with the best team and the best policies, it is not possible to turn things round overnight. A plausible scenario is the recession lasting up to a year, followed by several years of slow growth.

'And there's some reason to argue for this because it's not just crystal ball gazing but based on the argument that we can't continue to have the world growing, sustained by Americans consuming and borrowing, and by Asia producing and lending.

'So this global macro-economic balance between savings and consumption has to be rebalanced. The Americans have to save more, consume less, probably invest more in infrastructure.

'Asian countries are continuing to save, will have to invest more or will have to consume more so that the global imbalances will be reduced and Asia can take up the slack of what the Americans are not consuming.'

These are not adjustments which can take place overnight. Which is why he thinks that it will be some time before the world goes back to sustained growth again, he said.

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