ECONOMIC FORECASTING (Improvement of)

Dr Ow Chin Hock asked the Acting Minister for Trade and Industry what measures are being taken to improve M/1/3 upon the quality of economic forecasting and also to provide the latest economic data.

BG Lee Hsien Loong: Mr Speaker, Sir, to improve our economic forecasting, the Department of Statistics is developing an index of leading indicators. This index is meant to give us early warning of economic downturns and recoveries. At the same time, the Ministry of Trade and Industry is setting up a new Economic Research Unit. This Unit will develop an econometric model of the Singapore economy. The model will be useful not only in forecasting the likely performance of the economy, but also in working out the probable effects of different economic policies.

Lest I raise unrealistic expectations, let me caution that no econometric model, or indeed any forecasting tool or technique, can be completely reliable. It is particularly difficult to predict the performance of a small, open economy such as ours. The external influences on its course are dominant, and can never all be infallibly foreseen.

New techniques will only improve our forecasts if they are supplemented by good feedback and informed business judgments. MTI will therefore continue to give weight to our surveys, such as the Survey of Business Expectations, and the feedback through agencies such as the EDB and the TDB. At the same time, we will also improve on our statistical publications to make them more timely, accurate, comprehensive and useful.

I would therefore urge private sector firms and businessmen to respond promptly and accurately to our surveys. I would also like to encourage firms, industry groups, chambers of commerce, and also academic economists, to publish more independent analyses of our economy. This will reduce the risk of basing plans and policies on only one set of forecasts.

Finally, the latest statistics on the state of the economy. Based on data for the month of January, which is the latest available, MTI preliminary estimates are that GDP in the first quarter of this year is likely to be 4% lower than the first quarter of last year. Several key sectors, notably manufacturing, construction and commerce, are still declining.

This comes after a 5% decline in the last quarter of 1985. The economy therefore still shows few signs of recovery.

Dr Augustine H.H. Tan (Whampoa): Sir, will the Acting Minister promise to release all data that are required by academic economists and others who wish to analyze the state of the Singapore economy?

BG Lee Hsien Loong: Mr Speaker, Sir, all data which can be released without detriment to the public interest will be released.

Dr Ow Chin Hock (Leng Kee): Sir, could the Acting Minister tell us how often will the economic indicators and data be made available to the public?

BG Lee Hsien Loong: Sir, the index of leading indicators is just in the process of being developed and validated. I think it will be a few months before we are confident that it works. In fact, we would not be certain until it has predicted several turning points successfully. We will release the data quarterly, the same way as we have been releasing GDP statistics quarterly, and as promptly as we can. And if it is necessary, we will do it more often. But there is a cost to producing data more frequently than that.

Mr Chng Hee Kok: Sir, will the Acting Minister indicate the timeframe by which this econometric model will reflect the future of our economy accurately?

BG Lee Hsien Loong: Mr Speaker, Sir, we hope that as time goes on, our econometric model will become more and more accurate. We also hope that within a year or two, it will able to make useable predictions. However, if the Member for Radin Mas has read the reports of the forecasts of the US economy, which are regularly published in great profusion, and which are based on extremely sophisticated and complex econometric models, he will understand that no matter how elaborate the model or how sophisticated the computer you use, there is still a very large degree of uncertainty involved in predicting the future of an economy.

Mr Chng Hee Kok: Sir, that is precisely the point, because we may be relying on a model that makes the public expect too much. And this is the fear that I have.

BG Lee Hsien Loong: Mr Speaker, Sir, that is precisely the reason why we are not ready to release the model yet.

Mr Leong Horn Kee (Thomson): Sir, has the Acting Minister any intention to introduce statistics called flash estimates that have been used in the US which give advance notice as to how the economy is performing?

BG Lee Hsien Loong: Mr Speaker, Sir, the January statistics which I just gave you constitute a flash estimate. Flash estimates are not very reliable. They give you a quick first-feel. If need be, particularly at critical times, we will release them.