Tharman signals that weak global economy could hit Singapore hard

August 8, 2008
No quick rebound for economy
Tharman signals that weak global economy could hit Singapore hard
By Clarissa Oon, Political Correspondent

THE Singapore economy is grinding towards a slowdown, and Finance
Minister Tharman Shanmugaratnam said yesterday that growth is
unlikely to rebound 'anytime soon'.

It is the clearest signal yet from the Government that the weakening
US and global economy is hitting Singapore harder than initially
expected.

Mr Tharman said: 'I don't think we're near the bottom yet, it's
something we're all watching, especially the American economy.'

The turn of events is recent, he indicated.

'The American economy is in a much more perilous state now compared
to just three or six months ago. The risk facing the financial
system, which is a global system ...is still very substantial.'

The continued weakness in the global economy 'may extend well into
next year, and we won't be able to avoid a slowdown if that happens',
he said.

The Finance Minister's remarks at a ceremony at ST Aerospace to mark
National Day took economists like OCBC Bank's Selena Ling by
surprise.

'What Mr Tharman said sounds a little more bearish than the official
stance for the year to date,' she said.

The economists also said his comments strike a somewhat downbeat note
ahead of Prime Minister Lee Hsien Loong's National Day message
tonight - when he typically would update Singapore's growth forecast
for the year - and the release of the final figures of the second-
quarter GDP growth on Monday.

Official forecasts set this year's growth between 4 and 6 per cent.

But last month, Government preliminary estimates showed the economy
grew by 1.9 per cent in the second quarter, the slowest pace in five
years. It led private-sector economists to lower their forecasts to
between 3.5 and 5.8 per cent.

Singapore's manufacturing sector has borne the brunt of the global
slowdown as exports are hit hard.

Also, growth in services, especially finance and tourism, is cooling
off, said Citigroup economist Kit Wei Zheng.

Like other economists, he expects the Government to shift its focus
from fighting inflation to battling the slowdown.

As the 'inflation dragon has not been slain', he said any immediate
policy changes will likely be fiscal - like cutting taxes for
business - than monetary.

But in time, the Singapore dollar, which has been allowed to
strengthen to fight inflation, may weaken to make local exports more
competitive.

Speaking to reporters, Mr Tharman noted the Singapore economy is
fundamentally competitive and 'if we slow down it's because the rest
of the world is slowing down'.

He also said, in his speech, the Singapore spirit of 'unity, tenacity
and perseverance' will take the nation though these difficult times,
as shown in earlier crises.

He had reassuring words for those worried about the high cost of
living.

The Government still expects inflation to ease towards the year's end
and 'we should be within our latest inflation forecast of 6-7 per
cent', thanks to the recent decline in oil prices and levelling off
of food prices.