ECONOMIC OUTLOOK FOR 1988

Mr Chew Heng Ching asked the Minister for Trade and Industry what is the economic outlook for Singapore in 1988.

BG Lee Hsien Loong: Sir, MTI released its economic review of 1987 and forecast for 1988 on 31st December last year, to coincide with the Prime Minister's New Year message. The Clerk has distributed copies (Cols. 257 - 262) to Members and he should have one. copies - ECONOMIC PERFORMANCE IN 1987 AND GROWTH ESTIMATES FOR 1988 (Cols. 257 - 270)

In 1987, the Singapore economy recovered fully from the recession and grew by a robust 8.6%. Growth this year is likely to be slower, 5 to 6%, in line with the expected slowdown in the international environment. With indigenous labour force growing by about 2%, provided our productivity improves by about 3.5%, we should be able to achieve steady growth within the long-term target of 4 to 6%.

This forecast for 1988 assumes that there will be no global recession. We expect the US economy, our largest domestic export market, to grow by 2%. However, should a recession materialize, external demand for our goods and services will weaken, and our growth will be much slower than the 5 to 6% presently projected.

Mr Chew Heng Ching (Kaki Bukit): Sir, based on the growth of 5 to 6%, what proportion of the growth is likely to come from employment creation; how many jobs are likely to be created; and from which economic sectors?

BG Lee Hsien Loong: Mr Speaker, Sir, clairvoyant as MTI is, we do not have the answers to all those questions. We are projecting a labour force growth of about 2%. It certainly cannot be more than this because we know the number of young people coming into the workforce, about 40,000 a year. You can tell roughly the number who will retire each year, about 20,000. And we cannot easily expand the total number of foreign workers within the economy very much more, because we already have so many foreign workers. So that sets a constraint. That means the balance of the growth has to be made up through productivity improvements. Whether we will achieve that depends on whether companies invest in equipment and training. It also depends on demand: having put in this capacity, whether we can sell our goods and services overseas. I am sure by the end of the year, what the Member wants to know will be known.

Dr Augustine Tan: Sir, could the Minister explain to this House why the recent stock market crash in Singapore appears to have very little impact on the growth rate?

BG Lee Hsien Loong: Sir, first of all, we are not sure that it has very little impact on the growth rate. There is a lag of about two quarters between movements in the financial sector and the stock markets and the real sector of the economy: exports, production. So far, as a result of the stock market crash, we have seen our leading indicator go down. After a very long period of improvement every month, it has gone down for three months in a row: down, then flat, then down again. Will this mean that in six months' time the economy will slow down? Maybe. It depends on what happens after this. But I think the stock markets not only in Singapore but elsewhere are in for an uncertain time because the fundamentals which were out of synch before October 19th are still out of synch.

How much effect will the Singapore stock markets have on the Singapore economy? we think relatively less than in the United States, because fewer people in Singapore own stocks and because a lot of our economy really is based on companies which are not listed on the Stock Exchange but are listed elsewhere: all the multi-nationals, for example. Will this mean that we will escape? No, because our stock market movements are derivative. They are derivative on the US stock markets, the Japanese and European stock markets. So whether the global movements in the financial circles will affect us depends whether they affect the US economy. we will be on the same roller coaster. I think we will know in about three months because by then, the trend of the leading indicator will be known and whether there is any slowdown overseas will start to be seen.

Dr Augustine Tan: Sir, in view of what the Minister has said about the more robust Japanese growth expected for this coming year, are there attempts being made to push our exports in the Japanese market since that is where the potential lies?

BG Lee Hsien Loong: Mr Speaker, Sir, I do not recall saying anything about more robust Japanese growth in the coming year.

Dr Augustine Tan: In the review.

BG Lee Hsien Loong: That is in the review. We are pushing our exports to Japan. The numbers have gone up. In percentage terms, they have gone up quite well, but in absolute numbers, they are still low. As you are aware, the Japanese market is not an easy one to break into. There are many - perhaps impediments might be too strong a word - but many reasons why each time we move, the results are far less than one might a priori expect. For example, recently we were informed that the Japanese were generously improving some GSP preferences for Singapore. There were a number of items. The one which was supposed to be of interest to us was peppermint oil. You might not be aware that we are exporting peppermint oil. In fact, neither was I. As it turned out, the total value of peppermint oil and many other things which we cannot name came to less than $200,000 a year. So the benefit might disappear into the decimal points. Nevertheless, it is a market which will gradually become more open because the Americans will push it and the Europeans will push it and we will do our little bit. And as it opens, our people should be ready to move in.