With the economy taking a turn for the worse, Singaporeans are worried about how the future is going to affect them. And while remains the key factor that plagues the people, Mr Lee Hsien Loong, with the help of his faithful media, pretends that it doesn’t exist. Read the Channel News Asia report and compare this to the two reports that follow.
PM Lee confident about Singapore’s economy
Channel News Asia
24 Jan 08
Singapore’s Prime Minister Lee Hsien Loong said it is likely that the United States will go into a recession, but he is confident Singapore and Asia can weather the storm.
He made the comment at a breakfast meeting with 40 businessmen from the French Business Confederation as he wrapped up his three-day official visit to Paris.
The financial markets in the West have been hit by the US sub-prime problems, and that in turn has affected Asia, including Singapore.
Although a few Asian banks have some exposure to bad loans in the US, Mr Lee said most had only limited direct exposure.
“This is positive for Asia because if the Asian banks have also been deeply engaged, then we would have the problem, not only imported to us, but on our door-step. But fortunately, it does not appear to have happened,” he said.
Giving his assessment, Mr Lee said the economies of China and India will continue to grow despite what happens in the US, and this will help to give a boost to the Asian region.
For Singapore, an open economy, Mr Lee said it will feel the impact of what’s happening in the US, but there are several positive trends to help the country ride through the storm, such as having new investments and major construction projects that are currently underway.
On how Singapore’s growth would be affected, he noted the country’s economy grew 7.5 per cent last year, and Singapore is maintaining its official forecast of 4.5 to 6.5 per cent growth for now.
Mr Lee said, “We’ll watch the situation closely and will update the forecast if necessary. We should not have a knee jerk reaction and lose our bearings in the middle of dramatic market volatility. We’ve had four years of strong and above-strength growth in Singapore.”
He also said Singapore and Asian countries can weather this financial storm, unlike the 1997 Asian financial crisis. “We got through that. That was all around us, right in Asia, we were at ground zero. And this is something which is broader. But in Asia, I think we are stronger and better prepared and we will weather it.”
Mr Lee reassured French businessmen that despite current financial volatility, Asia is a growing market with ample opportunities.
Singapore’s dual threat: high inflation, downturn
Wall Street Journal
24 Jan 08
Singapore’s inflation hit a 25-year high in December, creating fresh pressure to tighten policy just as the island braces for an economic downturn.
The consumer-price surge, led by both import costs and a robust property market, is expected to persist through this year, but the Monetary Authority of Singapore may find its hands tied if the U.S. slips into recession.
The consumer-price index, a measure of costs for noncore goods and services, rose 4.4% from a year earlier after rising 4.2% in November, the Department of Statistics said yesterday. The rise was the fastest since April 1982 and higher than the 4.3% increase forecast by economists polled by Dow Jones Newswires.
Costs of food and energy continue to fuel inflation across Asia, but economists say central banks must also weigh the likelihood of a slowdown in global demand.
“Inflation through the region is going up, but it’s not clear when the U.S. economy will bounce back,” said Prakriti Sofat, an economist at HSBC in Singapore. “Central banks can’t ignore either factor.”
The government has forecast economic growth of between 4.5% and 6.5% in 2008 – less than the 7.5% clip posted in 2007 – but analysts say that target won’t hold if the U.S. economy falters.
Tuesday’s surprise move by the U.S. Federal Reserve to cut the federal funds rate by 0.75 percentage point could further complicate matters for Singapore as the island’s low interest rates fuel rising asset prices. The Monetary Authority of Singapore uses exchange-rate targeting to control prices because import costs are a key driver of inflation, and consequently gives up control of interest rates.
The yield on the two-year Singapore government bond dropped more than 0.1 percentage point in trading yesterday.
“Singapore needs to deal with the effects of lower interest rates that result from the Fed’s move,” said Joseph Tan, senior strategist at Fortis Bank in Singapore.
He said inflation in Singapore has averaged 0.9% over the last 10 years, but the central bank predicts consumer prices will rise between 3.5% and 4.5% this year.
Transportation costs were a leading driver of overall inflation in December, increasing 6.4% from a year earlier due to more expensive gasoline and a rise in taxi fares. Mr. Tan said Singapore might follow the lead of China, which recently instituted price controls to stem a surge in commodity costs.
“It goes against free-market theory, but Singapore could do what China’s doing,” he said. “The government could step in to keep taxi fares from rising any further.”
Month-to-month, the CPI gained 0.5% in seasonally adjusted terms, surpassing a forecast for a 0.3% rise. For the year, the CPI gained 2.1% in 2007 after rising 1% in 2006.
High inflation in time of weak growth poses challenge to Singapore MAS
24 Jan 08
The Monetary Authority of Singapore (MAS) may have to make a tough call in setting the city-state’s monetary policy as it faces a choice between curbing soaring inflation and supporting economic growth against the strong downward pull of the US economy this year, economists said Wednesday.
Economists are expecting the Singapore economy to moderate its pace of expansion to about 5-6 percent this year from 7.5 percent last year, while inflation will average about 5 percent, more than double the 2.1 percent in 2007.
CPI data released earlier showed consumer prices at a 25-year high in December at 4.4 percent, with a strong chance of hitting 6 percent in the first quarter due to rising food and petroleum costs. Housing costs are also expected to boost inflation due to the adjustment in the annual values of Housing Development Board flats, as well as a further electricity tariff charge, economists said.
The MAS reins in inflation by managing the movement of the Singapore dollar nominal effective exchange rate against a basket of trade-weighted currencies. A policy of modest to gradual appreciation of the Singapore dollar has long been maintained, with a slight tightening bias adopted in October last year when inflation started creeping up.
‘The balance of risks is slowly shifting towards the growth side. And I think it is going to be challenging for monetary policy implementation,’ said Kit Wei Zheng, economist at Citigroup.
Citigroup has slashed its 2008 GDP forecast for Singapore to 5.6 percent from 6.2 percent to reflect ‘expectations that exports face greater headwinds in the first half of the year.’ The bank is expecting inflation to average 5 percent.
‘The MAS is probably hoping slower growth will bring down the inflation number but this is by no means a foregone conclusion,’ Kit said.
Most economists are expecting the MAS to maintain its current policy to support the economy, while allowing inflation to overshoot its target of 3.5-4.5 percent.
Against a backdrop of slowing external demand – the US economy seems to be on the brink of recession and the European Union is also exhibiting signs of weakness – the MAS is unlikely to favor a much stronger currency.
‘Inflation is a concern but there is also growing downside risk on growth so I don’t think MAS would want such a strong pace of dollar appreciation that will stifle the exports sector,’ said Ho Woei Chen, economist at United Overseas Bank.
The MAS will conduct its semi-annual review of its monetary policy in April.
HSBC economist Robert Prior-Wandesforde, meanwhile, expects MAS won’t completely ignore the soaring consumer price index (CPI) number, even with heightened downside risks for the economy.
‘If they [MAS] are meeting at a time where inflation may be around 6 percent, they will feel they have to do something to try and cool inflation down even though everyone knows it will fall back a bit in the second half of the year,’ Prior-Wandesforde’ It is a slightly closer call than it was a couple of months ago as some of the recent poor economic data may make the MAS think twice,’ he said.
Prior-Wandesforde is expecting the MAS to either do a re-centering of the band or adjust the band upward, allowing for a stronger appreciation of the Singapore dollar.