I REVIEW OF THE ECONOMY ECONOMIC PERFORMANCE IN 1998

In contrast to 1997 when we were relatively unscathed, the Singapore economy experienced the full impact of the regional crisis in 1998. Economic growth last year slowed sharply to 1.5%. On a year-on-year basis, GDP growth has turned negative for the last two quarters of 1998, after registering negative quarter-on-quarter growth for the first three quarters of 1998.

The sharp contraction in regional demand was the key cause of our economic weakness. The crisis-afflicted economies of Indonesia, Thailand, Malaysia, Korea and Hong Kong all suffered recessions in 1998, with significant output declines throughout the year. The economic situation in Japan also worsened considerably, with rising concerns about its banking system. Through our close economic linkages, problems in these six Asian economies impacted on Singapore, particularly for the more regional-oriented services sectors. For example, overall trade shrank by 7.5% in 1998, visitor arrivals declined by 13%, while activities in the Asian Dollar Market contracted by 10%.

Retrenchments reached an all-time high of 28,300 as rising competitive pressures, coupled with the fall-off in business demand, led to consolidations in business operations. Job insecurity and lower wage growth caused a 0.1% decline in private consumption spending. As demand declined, prices fell and the Consumer Price Index contracted by 0.3% for 1998. A significant fall in domestic asset prices added to the bearish sentiment and exacerbated contractionary pressures associated with the economic decline.

The combination of external and domestic contraction has produced Singapore's second economic recession since independence. Unlike the 1985 recession, the current downturn is primarily a result of the sharp moderation in external demand. In several regional countries, structural economic and financial problems have been complicated by more fundamental political and social factors. These will take a longer time to resolve.