Impact of Eurozone Debt Crisis on Singapore's Economy

Dr Lily Neo asked the Minister for Trade and Industry (a) whether the worsening Eurozone debt crisis and woes of the global economies are affecting Singapore and if so, how; and (b) whether there are measures to cushion the repercussions here.

The Second Minister for Trade and Industry (Mr S Iswaran) (for the Minister for Trade and Industry): Mr Speaker, Sir, the sovereign debt crisis situation in Europe remains worrying. While the immediate risk of Greece exiting the Eurozone has receded following the formation of a pro-Euro coalition government that supports the bailout programme, concerns over its medium-term fiscal sustainability and ability to stay in the Eurozone persist. In addition, there are uncertainties as to whether Italy and Spain, the third and fourth largest economies in Europe, would require full-scale bailouts. A key challenge would be for Eurozone economies to muster the political will to put together an effective intervention package. Against this backdrop, the Eurozone economies will remain weak, as ongoing fiscal austerity and bank deleveraging continue to dampen domestic demand in the region.

Economic growth momentum has also slowed in the US and China. The pace of recovery in the US labour market has weakened in recent months, weighing down on consumer demand. In China, economic growth has moderated on the back of a sluggish external demand. Nevertheless, the recent accommodative policy measures announced by these countries would provide some support to their growth.

The slowdown in these major economies has affected our exports to some extent. Singapore's total Non-oil Domestic Exports (NODX) growth has slowed from 6.1% in the first quarter of 2012, to 2.5% for the first two months of the second quarter, that is, April and May. In particular, our NODX to the US and EU for the two months in the second quarter contracted compared to a year ago, while the NODX to China grew at a slower pace.

However, there is no immediate need for Government to step in with measures to cushion the economy from the slowdown in external demand. Singapore's labour market remains tight, with healthy employment creation and a low unemployment rate. Our NODX to regional trading partners, such as Indonesia and South Korea, continue to expand at a brisk pace, due to their resilient domestic demand. Supported by these factors, we still expect the Singapore economy to register positive growth of 1% to 3% this year.

Nonetheless, as the situation in Europe and the global economy remains challenging and fluid, the Government will continue to keep a close watch on developments and stands ready to respond when appropriate.

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Dr Lily Neo (Tanjong Pagar): Mr Speaker, Sir, three supplementary questions, please. May I ask the Second Minister whether his Ministry will introduce stimulus package should Singapore's economy turn for the worse and is there an optimal time to do so in order to prevent the deceleration of Singapore's economy?

My second question: may I ask the Second Minister whether the appreciating Singapore dollar has jeopardised the export competitiveness here in view of the global slowdown? Should this be reviewed and what are the other available measures to control imported inflation other than strengthening the Singapore dollar?

My last question: what is the exposure of the public and private sector holdings on Eurozone debt and equities? Should this be a concern?

Mr S Iswaran: I thank the Member for her series of questions. Let me take them in turn. Whether there should be a stimulus package and when would be the optimal time to introduce one, well, as I have explained in my answer, Mr Speaker, I think we need to monitor the situation closely and I think Members can draw reference from how the Government responded in the last crisis we faced – the global financial crisis. The timing is a matter of judgement and also what you do is a function of needs of the economy and the businesses at that point in time.

The second question pertains to the appreciating Singapore dollar: whether it can jeopardise exports, and whether there are other measures to control imported inflation. If you look at the exchange rate movement, in general, whilst it has posed some challenges to our businesses, at the same time, our export performance continues to be there, in terms of positive territory. The NODX numbers I cited are evidence of this. It is a question more of where the external demand resides, which markets are growing and it is more a function of that than export competitiveness per se , of our businesses. Having said that, we are embarking and undertaking, on an on-going basis, a range of measures, whether it is to do with productivity enhancements, whether it is to do with other forms of business continual improvement, in order to help our businesses remain competitive vis-a-vis their external counterparts, so that they continue to have their fair share of the market externally.

Finally, the exposure of the private sector and public sector to Eurozone holdings: I do not have specific numbers. I would draw the Member's attention to a question for Written Answer in today's Order Paper, pertaining to our bank's exposure to the Eurozone. In sum, the gist of the answer would be that the exposure of our banks to the Eurozone remains low, whether it is in terms of lending activities or in terms of sources of funds, and at the same time, in terms of economic activity and credit facilities here, while some banks may have curtailed their activities, others have stepped up to the table and we also have seen more Asian banks doing more in our part of the world.

Dr Lily Neo: Could the Second Minister elaborate on the appreciating Singapore dollar again? Are there measures other than the strengthening of the Singapore dollar, in order not to jeopardise our export competitiveness and at the same time, how do we control imported inflation?

Mr S Iswaran: Mr Speaker, Sir, without going into a lot of details, I would say that the Singapore dollar value relative to other currencies is one component of what impacts the cost of doing business. And that is what ultimately determines the competitiveness of our companies. And as I elaborated earlier, to the previous supplementary question, we need to look at the range of factors, because the Singapore dollar is but one component and it is an instrument that is used for a wider range of macro-economic objectives. So, our efforts through the MTI agencies, such as SPRING, EDB and IE Singapore, have really been to focus on how we can ensure our businesses remain competitive so that they can see through not just this cycle, but beyond, and remain strong firms that can get their fair share of the market, because there are a lot of strong growing markets in the region and we should make sure that our businesses are well-positioned for that.

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