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From exuberance to caution

In just 12 months, Singapore has swung from Boom Town to seeing its slowest quarter in five

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

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.

Business Times – 09 Aug 2008

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