Tony Tan's 'Worst Recession' Remark Not A Forecast

Source : The Business Times, April 25, 2008

'Pessimistic scenario' is one of three that GIC is working on

Government of Singapore Investment Corp (GIC) deputy chairman Tony Tan yesterday clarified that his remarks earlier this week that the world could be facing its worst recession in 30 years unless policymakers act soon were not meant as a forecast for the global economy.

Instead, they referred to a 'pessimistic scenario' - one of three basic economic scenarios that GIC is working on as part of its risk management, he said.

GIC 'continuously reviews a range of economic scenarios' that can affect its investment strategy, he added.

GIC, which invests Singapore's foreign reserves overseas, is the world's third largest sovereign wealth fund, with an estimated US$330 billion in assets under management, according to Morgan Stanley in February.

Dr Tan, who is also an executive director of GIC, had warned at the inaugural GIC Staff Conference on Monday this week that unless policymakers act decisively, the world 'could be facing a recession which is longer, deeper and wider than any recession that we have encountered in the last 30 years'.

Yesterday, he indicated that GIC is working on three scenarios - an optimistic scenario in which neither the US economy nor global economy suffers a recession and the credit crisis ends quickly; a pessimistic scenario with a deep, prolonged global recession; and a 'middle' scenario in which the US suffers a mild recession but the global economy avoids a recession.

In 'normal' times, there would be a 'central' scenario representing the most likely outcome, with the optimistic and pessimistic scenarios on either side of it as extreme cases, each with a much lower chance of occurring than the central scenario, Dr Tan said.

'However, in light of the current fluid and uncertain times, the probability of the pessimistic scenario, while not the highest, has risen to a level that warrants serious consideration by GIC. That is why I highlighted this scenario at the GIC Staff Conference,' he said.

He did not state the respective probabilities GIC has attached to each of the three scenarios.