For S'pore, much depends on the shape of the US downturn - whether it's V, U or L
To the eternal optimists who think that the Singapore economy will rebound from its lean patch in the months to come, Prime Minister Lee Hsien Loong offered a sobering projection: he expects the slowdown to continue into next year.
While the economy is on track to hit 4-6 per cent growth this year, Mr Lee sees its momentum slowing in the next few quarters as the United States economy limps along, dragged down by still-unfixed sub-prime mortgage problems.
And whether it's a V-shaped or U-shaped downturn in the US, it could extend the slowdown in Singapore's economy into 2009, Mr Lee told some 1,500 unionists yesterday at a National Trades Union Congress May Day Rally.
'The first quarter is good,' he said. 'Second, third, fourth quarters - prepare ourselves that it will slow down. And the slowdown may last into next year.'
It could be worse if the US falls into an L-shaped economic trajectory - the gloomiest scenario, when there is a severe and extended downturn in the US, like the decade-long recession Japan went into in the 1990s.
'If that happens, then America is in trouble,' Mr Lee said. 'So too Europe, so too Japan. And Singapore will be caught up in this and we will be in serious difficulties too.'
But he noted that most analysts don't think this is on the cards.
The best scenario for the US is a V-shaped downturn - a quick recession followed by a quick rebound - which is also the best scenario for Singapore, Mr Lee said. 'But it is hoping for the best'.
He said the US could easily slip into a U-shaped downturn because its underlying housing problems remain unsolved. The actions taken so far have only postponed the problems into the future.
'The property prices have to go down further,' Mr Lee said. 'When they go down, the banks will have more problems. When the banks have problems, they shrink. That will cause the economy to have more problems.'
In a U-shaped downturn, the bottoming will last longer and the US economy will take some time to sort itself out - perhaps until 2009, according to him.
'This could well happen and then Singapore too will be slowed down significantly,' Mr Lee warned.
'But whatever it is, we have to stay on our guard and stay prepared,' he said. 'Overall, I would expect V-shaped if we are lucky (or a) U-shaped downturn in the US - better plan on that.'
Whatever shape the US downturn takes, Mr Lee said the impact on the Singapore economy will be uneven. Construction, marine engineering, ports and shipyards will be 'all right', according to him.
'Construction will be okay because we have so many things building in Singapore,' Mr Lee said.
'Marine engineering will be okay because the shipyards are doing well. Ports will be okay because the port is highly competitive and bringing in a lot of business.'
But tourism, financial services and perhaps information technology will feel at least some pain.
All this suggests that Singapore's year-on-year economic growth in the coming quarters will fall below the surprisingly strong 7.2 per cent gain estimated for Q1.
'Essentially, Singapore has to be prepared for fairly rough weather ahead,' said Manu Bhaskaran of Centennial Group, a US-based economic consultancy.
He sees a prolonged period of 'meagre' economic growth in the US - and Europe and Japan are not going to take up the slack, because the leading indicators for these two large economies also point to a slowdown, according to him.
Mr Bhaskaran said Singapore has built up some resiliency in its services sector, which puts it in a better position than before to absorb the impact of a US recession. But even then, it remains an open economy and a downturn in the US, Europe and Japan at the same time will hit Singapore.
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