SINGAPORE ECONOMY

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SINGAPORE ECONOMY:

(Outlook): 12.

Miss Penny Low asked the Minister for Trade and Industry (a) what is the outlook for the Singapore economy in the short and medium term given the current global situation; (b) whether his Ministry intends to revise our annual growth rates; and (c) what advice can the Ministry give to employers and employees to keep afloat in this uncertain time.

13.

Dr Lily Neo asked the Minister for Trade and Industry (a) what is the prospect of stagflation affecting Singapore, if it has not already set in; and (b) what are the measures considered to avoid the pitfalls of stagflation.

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The Senior Minister of State for Trade and Industry (Mr S Iswaran) (for the Minister for Trade and Industry): Mr Speaker, Sir, may I have your permission to take Question Nos. 12 and 13, please?

Mr Speaker: Yes.

Mr Iswaran: Sir, Dr Lily Neo has asked about stagflation and whether it has set into Singapore. Stagflation refers to a prolonged situation of stagnant economic activity coupled with high inflation. This happened in the mid-1970s when many of the OECD countries (notably the US and UK) experienced high inflation, sluggish economic growth, and rising unemployment.

Mr Speaker, Sir, Singapore is not facing stagflation. Singapore's economy grew by 4.3% in the first half of this year, based on the latest GDP advance estimates, that is the number it stands. This is within our medium-term potential rate of growth of 4%-6%. Our job market remains healthy. In the first quarter of the year, more than 73,000 jobs were created, and unemployment remains low.

The momentum of economic growth has recently slowed, and the global economy is expected to remain soft in the second half of 2008. In the US, there are significant vulnerabilities in the financial sector. And in the other major developed economies like Japan and Germany, they also expect to see further softening, as they are confronted with the challenges of high oil prices and weak consumer confidence.

In Asia, on the other hand, economic growth has been fairly robust. China's GDP grew by 10.6% in the first quarter of this year, while India's GDP grew by 8.8%. But both China and India are facing high inflation and have started to take steps to contain inflationary pressures. These in turn could dampen growth.

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In Singapore, the strong pipeline of foreign investments and tourism projects that we have secured will also provide a certain level of support to the economy for the rest of this year and beyond. These new projects will give rise to new activity and help to create new jobs.

Earlier in May, the Ministry of Trade and Industry estimated Singapore's GDP growth for this year at 4% to 6%. We will review this forecast in August, after we have compiled all relevant data for the first half of 2008.

Turning to inflation, the other aspect of stagflation, since mid-2007, CPI inflation in Singapore has risen to 7.5% in May 2008. This is due largely to the sharp increases in global prices for food and fuel, which have also affected other countries. We expect some moderation in inflation in the second half of 2008, as the effects of the GST increase wash out and food prices peak. But inflation is not likely to return to previous levels any time soon.

The Government has put in place several measures to dampen inflation and help Singaporeans cope with the higher costs of living. The stronger Singapore dollar has helped to reduce imported inflationary pressures arising from the higher prices of food and oil.

At the same time, we must take care that wage growth does not exceed growth in productivity, so as not to set off a domestic wage-price inflationary spiral. The National Wages Council has recommended that companies grant sustainable wage increases that are commensurate with performance.

As a price taker, Singapore cannot avoid the effects of global inflation. But we can aim to reduce the impact of higher inflation on Singaporeans, by using our

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limited resources, in a targeted way, to help those most affected by higher prices. The GST Offset Package and rebates on utilities and conservancy charges, will help to ease the impact of higher prices faced by Singaporeans. The Growth Dividends, with more going to the elderly and the needy, will also provide some relief.

Miss Penny Low has asked for advice on employers and employees in this environment. During this period of economic volatility, it is important that our companies continue to upgrade their business capabilities and enhance their competitive edge. This will give our companies the requisite capacity to withstand the challenges of slower growth, as well as to capitalise on market opportunities, especially when growth recovers. We are committed to building the capacity of our companies. For example, SPRING's various programmes support the development of enterprise capabilities in the areas of automation, technology innovation, IT adoption and management development.

It is also important for employees to proactively upgrade their skills, so as to ensure that they remain productive and relevant in a changing economy. Working with the Ministry of Manpower and the Workforce Development Agency, we will ensure that there are appropriate continuing education and training (CET) programmes for all our workers from the rank and file to professionals and managers to help them weather uncertainties in the economic environment.

Miss Penny Low (Pasir Ris-Punggol): Sir, the retail sector in particular has reflected that they have been hit by the triple whammy. First, tightening consumer credit; second, rising retail, especially shopping centre rental rate; and, third, for those who have heeded the Government's call to expand overseas, they have also been hit by the uncertain economic

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conditions overseas which then obviously would impact the –

Mr Speaker: Miss Low, no speeches. Ask your question, please.

Miss Penny Low: – local businesses and resources. So my question is, in view of this, are there special measures to help our local SMEs maintain not just competitiveness but in fact survival, in particular the retail SMEs?

Mr Iswaran: Mr Speaker, Sir, the overall data on retail sector in the first half remains positive. So their overall performance of the sector is not a cause for alarm. But there are some components which may have some indifferent results maybe in the later part of the first half, for example, in the automotive sector and also, I think, in the watch and jewellery sector which are high-end, and you can expect some adjustment in spending efforts.

Having said that, we have a slew of measures in place, in terms of what SPRING is able to do, and the Member would be very familiar with them, such as the Local Enterprise and Association Development (LEAD) Programme and also the Capability Development Programme as well as other more targeted efforts. And SPRING is involved in an effort where the discussion is ongoing with the retail sector as to how we can further enhance their competitiveness, not just during a more challenging time but in the long run to position Singapore as continuing to be an attractive place for shopping for Singaporeans and international tourists.

So I would say that, in general, we have a fairly good dialogue with the retail sector and our agencies are working with them on an ongoing basis. As for risks when you go overseas, I think this is part of normal business risks which companies should rightly take and you ride the ups and downs as part of the business cycle.

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Dr Lily Neo (Jalan Besar): Mr Speaker, Sir, may I ask the Senior Minister of State, given that Singapore imports everything, will imported inflation outweigh the domestic income growth leading to negative purchasing power

and how serious will this concern be, especially for the lower income?

Mr Iswaran: The Member has asked a question like an economics professor. Let me try and address that in a more straightforward way.

The bottomline is whether inflation in the global environment will affect Singapore, and the answer must be yes. Although the Singapore dollar has appreciated in the last two years or so by maybe about 23% against the US dollar, the fact remains that we cannot be fully insulated from global price trends for precisely the reason that the Member has mentioned. What we need to do, therefore, is to make sure that our businesses are competitive. The key element is productivity and we must sure that our businesses are supported in that effort to enhance productivity. The other element is to ensure that the more vulnerable segments of our population, such as our lowest 20th percentile which spends about a third of their income on food, have the assistance against any inflationary pressure. So, giving them targeted assistance makes a lot of sense, especially in an environment where food price inflation is quite substantial.