Thursday, January 24, 2008
We Can Weather US Storm: PM
Source : TODAY, Thursday, January 24, 2008
Reasons why it won't be like the 1997 financial crisis
LIKE the bearish investors who have been stalking financial markets in recent weeks, Prime Minister Lee Hsien Loong believes that a recession is looming in the world's largest economy, the United States.
Still, Mr Lee is hopeful that the policies implemented earlier will provide buffers for the Singapore economy should a US recession come to pass.
"I'm confident that we're going to be able to weather this storm. This is not like the 1997 financial crisis and we got through that," Mr Lee told a group of 40 businessmen yesterday during a breakfast meeting hosted by the French Business Confederation (Medef).
A slowdown may also be the very thing needed for Singapore right now. Said Mr Lee: "If we have to ease this year, there may be some silver lining because it may relieve some supply constraints which have built up — manpower shortages, land shortages — and ensure more sustainable growth over the medium term."
It was the first time that the Prime Minister was giving his take on the current market chaos, since the United States Federal Reserve dramatically slashed interest rates and President George W Bush proposed an economic stimulus package.
Will the measures work wonders for the US, where massive losses linked to subprime mortgages have shaken major banks and investor confidence?
That is anyone's guess.
But in Mr Lee's view, "it is entirely possible and likely that America will go into recession", which is technically defined as a fall in economic growth for two straight quarters.
Once that happens, Singapore will certainly take a hit.
"Ours is a totally open economy, completely exposed to global markets. There is no way you can shelter from the wind-chill," he said, adding that external trade is a whopping 3.5 times that of domestic demand while the US alone buys 15 per cent of Singapore's non-oil exports every year.
In fact, when Uncle Sam sneezes, the whole of South-east Asia may catch the worst chill, according to Mr Steven Dunaway, the International Monetary Fund's deputy director for the Asia and Pacific department.
This is because if the US imports less, South-east Asian countries may face "extra competition" from China, which could slash prices in order to compete for a slice of the smaller pie.
Mr Dunaway predicted that a drop of one percentage point in US growth would shave 0.5 to 1 percentage point off Asia's growth.
However, some in the region may not feel as much pain. Mr Lee has China and India in mind:
"Whatever happens in America, they (China and India) are going to continue to grow. Their momentum is considerable … the domestic demand has been very robust," he said.
That resilience will be Asia's pillar of strength.
At the same time, Singapore can count on some pluses at home, said Mr Lee, who maintained the official growth forecast of 4.5 to 6 per cent this year.
First, years of restructuring the economy have boosted competitiveness, helping to draw in a strong flow of high-quality, new investments that will create jobs and growth in coming months and years. Examples he cited include a $6.3-billion plan by Norway's Renewable Energy Corp to build the world's biggest solar cell plant in Singapore.
Second, the services industry will be bolstered by an upcoming string of mega projects, such as the two Integrated Resorts and the Formula One night race in September.
Together, these factors give the Prime Minister hope. Sure, Singapore's economy is likely to decelerate this year after last year's stellar 7.5 per cent. But a slowdown would mean a pace that is more sustainable, Mr Lee said, as the Republic has enjoyed four consecutive years of above-trend growth since 2004. Analysts expect a mature economy such as Singapore to expand at around 3.5 per cent annually.
Mr Lee's bottom line to French businesses: Regardless of the present financial instability, opportunities remain in Asia.
After the breakfast meeting, the Prime Minister met former French President Jacques Chirac to go on a tour of Musée du Quai Branly, the primitive art museum started by Mr Chirac in 2006.
Earlier on Monday, Mr Lee also held talks with other French leaders such as President Nicolas Sarkozy and Prime Minister Francois Fillon.
From Paris, Mr Lee yesterday made his way to Davos, the Swiss ski resort town hosting the World Economic Forum's annual meeting, which is expected to be dominated by America's economic woes.
(Quote lift can use if there's space)
"We're not going to come back to the situation before August last year, where risk was under-priced and there was a remarkable ebullience, which could not be repressed despite many people realising that things could not continue indefinitely." – Mr Lee Hsien Loong
Reasons why it won't be like the 1997 financial crisis
LIKE the bearish investors who have been stalking financial markets in recent weeks, Prime Minister Lee Hsien Loong believes that a recession is looming in the world's largest economy, the United States.
Still, Mr Lee is hopeful that the policies implemented earlier will provide buffers for the Singapore economy should a US recession come to pass.
"I'm confident that we're going to be able to weather this storm. This is not like the 1997 financial crisis and we got through that," Mr Lee told a group of 40 businessmen yesterday during a breakfast meeting hosted by the French Business Confederation (Medef).
A slowdown may also be the very thing needed for Singapore right now. Said Mr Lee: "If we have to ease this year, there may be some silver lining because it may relieve some supply constraints which have built up — manpower shortages, land shortages — and ensure more sustainable growth over the medium term."
It was the first time that the Prime Minister was giving his take on the current market chaos, since the United States Federal Reserve dramatically slashed interest rates and President George W Bush proposed an economic stimulus package.
Will the measures work wonders for the US, where massive losses linked to subprime mortgages have shaken major banks and investor confidence?
That is anyone's guess.
But in Mr Lee's view, "it is entirely possible and likely that America will go into recession", which is technically defined as a fall in economic growth for two straight quarters.
Once that happens, Singapore will certainly take a hit.
"Ours is a totally open economy, completely exposed to global markets. There is no way you can shelter from the wind-chill," he said, adding that external trade is a whopping 3.5 times that of domestic demand while the US alone buys 15 per cent of Singapore's non-oil exports every year.
In fact, when Uncle Sam sneezes, the whole of South-east Asia may catch the worst chill, according to Mr Steven Dunaway, the International Monetary Fund's deputy director for the Asia and Pacific department.
This is because if the US imports less, South-east Asian countries may face "extra competition" from China, which could slash prices in order to compete for a slice of the smaller pie.
Mr Dunaway predicted that a drop of one percentage point in US growth would shave 0.5 to 1 percentage point off Asia's growth.
However, some in the region may not feel as much pain. Mr Lee has China and India in mind:
"Whatever happens in America, they (China and India) are going to continue to grow. Their momentum is considerable … the domestic demand has been very robust," he said.
That resilience will be Asia's pillar of strength.
At the same time, Singapore can count on some pluses at home, said Mr Lee, who maintained the official growth forecast of 4.5 to 6 per cent this year.
First, years of restructuring the economy have boosted competitiveness, helping to draw in a strong flow of high-quality, new investments that will create jobs and growth in coming months and years. Examples he cited include a $6.3-billion plan by Norway's Renewable Energy Corp to build the world's biggest solar cell plant in Singapore.
Second, the services industry will be bolstered by an upcoming string of mega projects, such as the two Integrated Resorts and the Formula One night race in September.
Together, these factors give the Prime Minister hope. Sure, Singapore's economy is likely to decelerate this year after last year's stellar 7.5 per cent. But a slowdown would mean a pace that is more sustainable, Mr Lee said, as the Republic has enjoyed four consecutive years of above-trend growth since 2004. Analysts expect a mature economy such as Singapore to expand at around 3.5 per cent annually.
Mr Lee's bottom line to French businesses: Regardless of the present financial instability, opportunities remain in Asia.
After the breakfast meeting, the Prime Minister met former French President Jacques Chirac to go on a tour of Musée du Quai Branly, the primitive art museum started by Mr Chirac in 2006.
Earlier on Monday, Mr Lee also held talks with other French leaders such as President Nicolas Sarkozy and Prime Minister Francois Fillon.
From Paris, Mr Lee yesterday made his way to Davos, the Swiss ski resort town hosting the World Economic Forum's annual meeting, which is expected to be dominated by America's economic woes.
(Quote lift can use if there's space)
"We're not going to come back to the situation before August last year, where risk was under-priced and there was a remarkable ebullience, which could not be repressed despite many people realising that things could not continue indefinitely." – Mr Lee Hsien Loong
Inflation Up 4.4%, Hits 25-Year High
Source : The Straits Times, Jan 24, 2008
Rising transport, oil, food costs drive up index; economists still positive, though
COSTLIER food, transport and health care drove Singapore’s inflation rate to a 25-year high of 4.4 per cent last month.
This comes amid growing fears that a possible United States recession will drag the global economy into a slowdown.
Economists, however, do not believe the Republic faces the dreaded spectre of stagflation - when an economy becomes stagnant as inflation gets far worse.
The Department of Statistics announced yesterday that the consumer price index rose 4.4 per cent last month from a year earlier. The index was up 4.2 per cent in November.
The index is a key measure of inflation and reflects changes in the prices of a fixed basket of goods and services households commonly purchase.
The rise was the highest since April 1982, but it was largely in line with earlier forecasts.
Key contributors to higher prices included transportation costs, which grew 6.4 per cent, soaring crude oil prices and a hike in taxi fares towards the end of last year.
Food prices went up 5.5 per cent due to more expensive cooked food, fresh fruits and vegetables, and milk products.
At the same time, health-care costs went up 6.3 per cent, reflecting higher charges for daily ward and medical treatment.
Compared with 2006, consumer prices for the whole of last year rose 2.1 per cent, partly reflecting the two-percentage-point hike in the goods and services tax in July.
Market watchers expect this inflationary trend to continue into the early part of the year.
Minister for Trade and Industry Lim Hng Kiang flagged this in November, when he said inflation could hit 5 per cent in the first quarter before moderating in the second half.
Economists Robert Prior-Wandesforde and Prakriti Sofat of HSBC’s Asian Economics team said in a note yesterday that inflation this month could reach as high as 6 per cent.
They cited reasons such as another round of electricity tariff hikes kicking in, as well as higher imputed HDB rents due to the Inland Revenue Authority of Singapore (Iras) raising the annual values of HDB flats.
However, when asked if higher inflation could combine with a potential global economic slowdown in a brutal double-
whammy for Singapore, economists were more upbeat.
CIMB-GK economist Song Seng Wun said the local economy would likely grow next year, albeit at a slower pace than this year.
‘With the construction and services sectors likely to continue growing strongly, gross domestic product is likely to make the minimum 4.5 per cent to 5 per cent growth forecast by the Government.
‘High inflation should continue into the first half, but I expect oil prices to plunge in the second half. This could ease inflationary pressures very quickly.’
Citigroup economist Chua Hak Bin agreed, saying: ‘The inflation we are seeing now is still demand-driven, and I doubt that a lot of prices can stay up if there is an economic slowdown.
‘Oil prices have eased drastically last week, and food prices are stabilising. So, it’s unlikely for us to see any stagflation.’
However, Ms Selena Ling, an economist with OCBC Bank, was more circumspect.
‘A lot of the inflationary factors we are seeing are domestically driven, such as higher taxi fares and the Iras revision of property values, and these will not be affected by a cooling of the global economy.
‘We could see some stagflation on a very small scale, much different from that during the oil shocks some 20 years ago, as the inflation is not in double digits this time.’
Rising transport, oil, food costs drive up index; economists still positive, though
COSTLIER food, transport and health care drove Singapore’s inflation rate to a 25-year high of 4.4 per cent last month.
This comes amid growing fears that a possible United States recession will drag the global economy into a slowdown.
Economists, however, do not believe the Republic faces the dreaded spectre of stagflation - when an economy becomes stagnant as inflation gets far worse.
The Department of Statistics announced yesterday that the consumer price index rose 4.4 per cent last month from a year earlier. The index was up 4.2 per cent in November.
The index is a key measure of inflation and reflects changes in the prices of a fixed basket of goods and services households commonly purchase.
The rise was the highest since April 1982, but it was largely in line with earlier forecasts.
Key contributors to higher prices included transportation costs, which grew 6.4 per cent, soaring crude oil prices and a hike in taxi fares towards the end of last year.
Food prices went up 5.5 per cent due to more expensive cooked food, fresh fruits and vegetables, and milk products.
At the same time, health-care costs went up 6.3 per cent, reflecting higher charges for daily ward and medical treatment.
Compared with 2006, consumer prices for the whole of last year rose 2.1 per cent, partly reflecting the two-percentage-point hike in the goods and services tax in July.
Market watchers expect this inflationary trend to continue into the early part of the year.
Minister for Trade and Industry Lim Hng Kiang flagged this in November, when he said inflation could hit 5 per cent in the first quarter before moderating in the second half.
Economists Robert Prior-Wandesforde and Prakriti Sofat of HSBC’s Asian Economics team said in a note yesterday that inflation this month could reach as high as 6 per cent.
They cited reasons such as another round of electricity tariff hikes kicking in, as well as higher imputed HDB rents due to the Inland Revenue Authority of Singapore (Iras) raising the annual values of HDB flats.
However, when asked if higher inflation could combine with a potential global economic slowdown in a brutal double-
whammy for Singapore, economists were more upbeat.
CIMB-GK economist Song Seng Wun said the local economy would likely grow next year, albeit at a slower pace than this year.
‘With the construction and services sectors likely to continue growing strongly, gross domestic product is likely to make the minimum 4.5 per cent to 5 per cent growth forecast by the Government.
‘High inflation should continue into the first half, but I expect oil prices to plunge in the second half. This could ease inflationary pressures very quickly.’
Citigroup economist Chua Hak Bin agreed, saying: ‘The inflation we are seeing now is still demand-driven, and I doubt that a lot of prices can stay up if there is an economic slowdown.
‘Oil prices have eased drastically last week, and food prices are stabilising. So, it’s unlikely for us to see any stagflation.’
However, Ms Selena Ling, an economist with OCBC Bank, was more circumspect.
‘A lot of the inflationary factors we are seeing are domestically driven, such as higher taxi fares and the Iras revision of property values, and these will not be affected by a cooling of the global economy.
‘We could see some stagflation on a very small scale, much different from that during the oil shocks some 20 years ago, as the inflation is not in double digits this time.’
Regent Garden Owners Deny Trying To Back Out Of Deal
Source : The Straits Times, Jan 24, 2008
MAJORITY owners at Regent Garden have denied that they are ‘greedy’ and trying to back out of a collective sale they are challenging in court.
The 25 owners told The Straits Times that they only want the court to clarify if the agreement with Allgreen Properties can proceed even if the price undervalues their property.
They want to know whether the contract is still binding in a case where the development charge is wrong.
The owners are also upset that Allgreen paid more money to the six minority owners, who did not vote for the sale, than it did to those who backed it.
The 25 owners inked an agreement last April to sell their property in West Coast Road to mainboard-listed Allgreen for $34 million.
One of these owners is former MP Aline Wong, who stepped down from the chairmanship of the Housing Board last year.
But the owners are claiming that the price is too low as the actual development charge - which is much lower - was not obtained. They want damages of between $5.7 million and $6.685 million from Allgreen.
The damages claim is based on two revised valuation figures that use the correct development charge.
The owners wrote to Allgreen last month, claiming that the sale price of $34 million was a ‘mutual fundamental mistake’ as it factored in a far higher development charge.
Allgreen said last Friday that it intends to ‘vigorously contest this action, and the claims and allegations made by the majority vendors’.
The Straits Times understands from the majority owners that they are only ’seeking clarification and fairness’ from the courts.
They want to know if the sale can go ahead at this ‘undervalue’ and not at ‘market value’.
They also query if minority owners can be entitled to additional payments from Allgreen but not share them with the majority owners.
MAJORITY owners at Regent Garden have denied that they are ‘greedy’ and trying to back out of a collective sale they are challenging in court.
The 25 owners told The Straits Times that they only want the court to clarify if the agreement with Allgreen Properties can proceed even if the price undervalues their property.
They want to know whether the contract is still binding in a case where the development charge is wrong.
The owners are also upset that Allgreen paid more money to the six minority owners, who did not vote for the sale, than it did to those who backed it.
The 25 owners inked an agreement last April to sell their property in West Coast Road to mainboard-listed Allgreen for $34 million.
One of these owners is former MP Aline Wong, who stepped down from the chairmanship of the Housing Board last year.
But the owners are claiming that the price is too low as the actual development charge - which is much lower - was not obtained. They want damages of between $5.7 million and $6.685 million from Allgreen.
The damages claim is based on two revised valuation figures that use the correct development charge.
The owners wrote to Allgreen last month, claiming that the sale price of $34 million was a ‘mutual fundamental mistake’ as it factored in a far higher development charge.
Allgreen said last Friday that it intends to ‘vigorously contest this action, and the claims and allegations made by the majority vendors’.
The Straits Times understands from the majority owners that they are only ’seeking clarification and fairness’ from the courts.
They want to know if the sale can go ahead at this ‘undervalue’ and not at ‘market value’.
They also query if minority owners can be entitled to additional payments from Allgreen but not share them with the majority owners.
Recession? What Recession?
Source : TODAY, Thursday, January 24, 2008
The global market panic driving Tuesday’s United States Federal Reserve rate cut is rooted in the still controversial idea that the US economy has slipped into a recession.
Many market participants now take it as an article of faith that the US economy is, or will soon be, in a contractionary phase of economic activity. Some even argue that as long as it “feels” like a recession, it is one. But that sentiment obscures the reality that thus far, there is no definitive view among economists about how weak the economy is or might become.
That’s not to say anxiety is not riding high. The Fed, which cut interest rates by an unprecedented margin on Tuesday, has consistently downplayed and underestimated economic and market conditions over recent months. Clearly, policy-makers have grown more anxious.
Since September, the Fed has cut its key overnight target rate by nearly two percentage points and engineered novel mechanisms aimed at getting liquidity into financial markets. In turn, the institution’s good works have been washed away by weakening economic data, most notably on the employment and manufacturing fronts, and by a seemingly-endless stream of bad news from financial markets.
Views held by forecasters have been unusually diverse. In recent weeks, several major investment banks, including Goldman Sachs and Merrill Lynch, have officially endorsed the view that the US economy is contracting.
Merrill’s frequently-bearish chief economist David Rosenberg said the four factors watched by official business-cycle-dating body, the National Bureau of Economic Research, are each on the way down. Employment, manufacturing and retail sales, along with industrial production and income, all appear to be coming off cycle high points: Mr Rosenberg sees this as a clear sign of a recession.
What’s worse, “the healing phase involved in expunging all the excesses left over from a multi-year leveraged boom in asset values takes time,” Mr Rosenberg said. He reckons the current year will scrape by with an average growth rate of 0.8 per cent - the year will likely see three contractionary quarters - with 2009 limping by at a 1-per-cent pace.
Mr John Silvia, Wachovia Securities chief economist, sees 50-50 odds of a recession but believes if policy-makers move aggressively, a downturn need not take place.
Miller Tabak strategist Tony Crescenzi sees reasons to be hopeful. The monetary policy stance and the prospect of fiscal stimulus are reasons to believe any contraction will be short-lived. Low inventories, rising exports, healthy corporate cash positions and possible new mortgage refinancings now that rates are moving lower are other positives.
Mr Joel Naroff, who helms forecasting firm Naroff Economic Advisors, said the economic data now in hand “does not tell us we are in a recession yet”.
While he’s cautious about the outlook, he argued that Tuesday’s rate cut was forced as much by market expectations as anything else. It is entirely possible that the upcoming January jobs report may be stronger than many think, which could make the size of Tuesday’s action seem over the top, he said.
While Tuesday’s action clearly shows that Fed officials are at least mindful of worst-case outcomes, even there, one finds diversity. Mr William Poole, who will soon retire as president of the Federal Reserve in St Louis, Missouri, used his final vote as a Federal Open Market Committee member to say that the apocalypse is not now.
Mr Poole has been an unreliable guide on monetary policy, but he also represents the views of many when he argued that as bad as things are for markets, the real economy has not lost its bearings.
The global market panic driving Tuesday’s United States Federal Reserve rate cut is rooted in the still controversial idea that the US economy has slipped into a recession.
Many market participants now take it as an article of faith that the US economy is, or will soon be, in a contractionary phase of economic activity. Some even argue that as long as it “feels” like a recession, it is one. But that sentiment obscures the reality that thus far, there is no definitive view among economists about how weak the economy is or might become.
That’s not to say anxiety is not riding high. The Fed, which cut interest rates by an unprecedented margin on Tuesday, has consistently downplayed and underestimated economic and market conditions over recent months. Clearly, policy-makers have grown more anxious.
Since September, the Fed has cut its key overnight target rate by nearly two percentage points and engineered novel mechanisms aimed at getting liquidity into financial markets. In turn, the institution’s good works have been washed away by weakening economic data, most notably on the employment and manufacturing fronts, and by a seemingly-endless stream of bad news from financial markets.
Views held by forecasters have been unusually diverse. In recent weeks, several major investment banks, including Goldman Sachs and Merrill Lynch, have officially endorsed the view that the US economy is contracting.
Merrill’s frequently-bearish chief economist David Rosenberg said the four factors watched by official business-cycle-dating body, the National Bureau of Economic Research, are each on the way down. Employment, manufacturing and retail sales, along with industrial production and income, all appear to be coming off cycle high points: Mr Rosenberg sees this as a clear sign of a recession.
What’s worse, “the healing phase involved in expunging all the excesses left over from a multi-year leveraged boom in asset values takes time,” Mr Rosenberg said. He reckons the current year will scrape by with an average growth rate of 0.8 per cent - the year will likely see three contractionary quarters - with 2009 limping by at a 1-per-cent pace.
Mr John Silvia, Wachovia Securities chief economist, sees 50-50 odds of a recession but believes if policy-makers move aggressively, a downturn need not take place.
Miller Tabak strategist Tony Crescenzi sees reasons to be hopeful. The monetary policy stance and the prospect of fiscal stimulus are reasons to believe any contraction will be short-lived. Low inventories, rising exports, healthy corporate cash positions and possible new mortgage refinancings now that rates are moving lower are other positives.
Mr Joel Naroff, who helms forecasting firm Naroff Economic Advisors, said the economic data now in hand “does not tell us we are in a recession yet”.
While he’s cautious about the outlook, he argued that Tuesday’s rate cut was forced as much by market expectations as anything else. It is entirely possible that the upcoming January jobs report may be stronger than many think, which could make the size of Tuesday’s action seem over the top, he said.
While Tuesday’s action clearly shows that Fed officials are at least mindful of worst-case outcomes, even there, one finds diversity. Mr William Poole, who will soon retire as president of the Federal Reserve in St Louis, Missouri, used his final vote as a Federal Open Market Committee member to say that the apocalypse is not now.
Mr Poole has been an unreliable guide on monetary policy, but he also represents the views of many when he argued that as bad as things are for markets, the real economy has not lost its bearings.
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