Sunday, December 7, 2008

Singapore Faces Its Longest Recession: Analysts

Source : The Business Times, December 6, 2008

THE current recession here will last till at least the middle of 2009, making it Singapore's longest recession ever, according to Chua Hak Bin, Head of Equity Research, Citigroup. Speaking at a forum organised by the Singapore Press Club yesterday, he added however that there could be a few silver linings for Singapore.

At the same forum, Manu Bhaskaran, CEO of economic consulting and advisory firm Centennial Asia Advisors, painted a gloomy outlook for the economy, noting that trade financing has been badly affected, with shipping rates falling over 90 per cent from their peak. This would have a significant impact on Singapore's trade-dependent economy, he noted. Monetary and fiscal easing by governments around the world, while appropriate, would take around 12 months to start having positive effects, he said. 'But we need more demand right now,' he added.

In the local context, Mr Bhaskaran pointed out that banks are being extremely cautious about approving loans, and thus foreign investors - even if they are interested in coming into Singapore - might have problems getting the funding they need for projects here. Many large projects have already been postponed, and more are likely to suffer the same fate, which would put further downward pressure on growth. He added that the IMF's forecast of 2 per cent growth for Singapore next year was 'highly optimistic'.

Mr Chua pointed out that up to 60 per cent of the world - China and India being the exceptions - is now in recession, which points to the slowest global growth since the global recession of 1981. He pointed out that in the US, asset values are still dropping, with housing prices set to fall about 33 per cent from their peak before bottoming out. He estimated this would happen by around the end of 2009.

With the sharp cutbacks in spending by Americans as well as Europeans, Asia would inevitably be affected. There would also be downward pressure on some Asian currencies, including the Singapore dollar, he said, which could go to 1.60-1.65 to the US dollar next year.

However, not all is gloomy for the Singapore economy, according to Mr Chua. The dramatic fall in the price of oil - from a high of over US$147 a barrel in July to less than US$50 at present - has benefited Singapore, which is a net importer of oil. Cheaper oil has led, for instance, to lower electricity prices, a trend which Mr Chua projected would continue next year.

Furthermore, Singapore is in a much better fiscal position than many countries to respond to the crisis, he felt.

Mr Bhaskaran called for greater global co-ordination in dealing with the crisis. Asian countries also need to coordinate more, he said, adding that Asean is the best platform for this. 'That is why China, Japan and Korea come to Asean, because they cannot do it themselves,' he pointed out.

Mr Chua and Mr Bhaskaran were guest speakers at the forum on 'The Global Financial Crisis: How Will It Play Out?' held at the SPH auditorium. The forum was moderated by BT's Associate Editor Vikram Khanna.

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