From exuberance to caution

August 9, 2008
From exuberance to caution
In just 12 months, Singapore has swung from Boom Town to seeing its
slowest quarter in five years, reports ANNA TEO

ONE year ago, economic and business sentiment in Singapore was
probably at an all-time high: The property market was on a roll,
banks and finance houses went on a hiring spree, and the economy,
flush with liquidity, looked headed for a fourth year of 7-9 per cent
growth.

The signs spelt Boom Town everywhere you looked, and economists
predicted that Singapore, restructured and reinvented, would trail
only China and India among Asia's fastest-growing economies for years
to come. Whiffs of (near-irrational) exuberance were much in the air.
Then, bang! Just days before National Day 2007, a global financial
market meltdown threatened the party mood. The balloons popped, but
as it turned out, the Singapore economy's strong first-half momentum
was enough to see it through the year. Gross domestic product (GDP)
growth for 2007 still turned in at a robust 7.7 per cent.

Twelve months on, the mood is decidedly more sombre. Overnight, it
seems, the property bubble (of 'exuberance', not so much 'excess'
this time) burst, the buzz in the finance sector has all but fizzled,
hot hiring has cooled (with even talk of selective retrenchment in
some segments), and the economy has now seen its slowest quarter in
five years.

Has there been a crack in the domestic underpinnings somewhere, or
is - as is widely assumed - the small open economy just taking hits
from external headwinds?

The much-heralded US economic slowdown has finally come to pass,
compounded by a sub-prime mortgage crisis that continues to wreak
havoc through not only the American economy but pretty much globally,
in second or third-round hits.

Slower growth has also set in elsewhere in the developed world,
following several years of robust performance. Not least, a surge in
global energy and food prices has pushed inflation to the fore of
policy concerns in just about every part of the world.

And latest analyses by economists list more than several major
economies 'navigating towards (or through) recession' - including the
US, Canada, Spain, Ireland, Italy, the UK and New Zealand. Germany,
France and Japan are also seen to be teetering on the brink of
recession. In other words, as RGE Monitor notes, a full-fledged G-7
recession in the making.

With this outlook, coupled with ever-present risks of yet another
bout of global financial turbulence, it is interesting to see some
fairly upbeat forecasts of East Asian resilience, like the Asia
Development Bank's (ADB) that expects the region to weather the
global economic turmoil 'relatively well' and grow 7.6 per cent this
year and next.

ADB has the Singapore economy growing 4.9 per cent in 2008 and 5.8
per cent in 2009 - probably a little more bullish than the consensus
here at this point - on the back of strong domestic demand (driven by
business investment) and buoyant exports. It's not apparent that
Singapore's exports will be too 'buoyant' this year - the official
forecasts of 2008 export growth were pared a few months ago, and
still the May and June trade figures proved unexpectedly bad.
Economists also generally see Singapore - given its size, structure
and exposure - as the region's most vulnerable to a global downturn.

Has the slowdown exposed, or widened, Singapore's fault lines? Sure,
inflation surged through the economy, price pressures piled up. But
apart from ever greater external uncertainties and a fall in
sentiment, fundamentally what has changed in the six months or so
between Boom Town exuberance in 2007 and sombre caution in 2008?
Problems such as structural joblessness in older Singaporeans and a
growing income disparity have not and cannot be swept away overnight.

That said, none other than Minister Mentor Lee Kuan Yew has declared
that the next five to 10 years will be Singapore's most promising yet
as it stakes its place among the world's top cosmopolitan global
cities.

'We are moving to a new plateau, a new platform. You can see it
visibly before your eyes,' Mr Lee said last month.

It's surely a vision to inspire all Singaporeans. But, for all the
spin around Singapore's restructuring and transformation, enhanced by
a huge influx of foreign skills, some believe that its fortunes - and
Asia's - will, for the foreseeable future, still largely be tied to
the global economy. Which also means that Singapore can and will ride
on the next upturn, when - or if - it comes.