TERRORIST ATTACKS AGAINST USA (Impact on Singapore economy)

[Mr Speaker in the Chair]

Mrs Lim Hwee Hua asked the Minister for Trade and Industry whether there will be an adverse impact from the unfortunate bombing incidents in the United States of America on Singapore's economic prospects and, if so, whether the Government will consider implementing further measures to help Singaporeans and businesses cope with the worsening downturn.

Mr Tay Beng Chuan asked the Minister for Trade and Industry, in view of the recent devastating terrorist attacks against the United States of America, whether his Ministry can (i) provide statistics regarding the extent of their negative impact on the Singapore economy; and (ii) introduce further measures to help the Singapore economy should it be badly affected by the events.

The Minister for Trade and Industry (BG George Yong-Boon Yeo): Mr Speaker, Sir, with your permission, I would like to take Question Nos. 1 and 2 together.

Mr Speaker: Yes.

BG George Yong-Boon Yeo: The recent terrorist attacks against the US are bound to impact the global economy. It has already caused significant disruptions to the US economy. The financial, insurance and airline industries are badly hit, although the interest rate cuts by the US Federal Reserve and the European Central Bank have helped to cushion the shock to financial markets.

Prior to this event, there were some indications that the US economy might be close to bottoming out, but the September 11 attacks have diminished markedly the prospects of an early recovery. Consumer confidence and spending are expected to decline, increasing the risk of a US and a global recession significantly. The Singapore economy will be adversely affected.

In Singapore, the immediate impact of the attacks was felt by our financial markets. The Straits Times Industrial Index fell by 7.3% while the Singapore dollar rose by 1.1% against the US dollar on 12th September as investors sold off the US dollar and stocks affected by the attacks. Air and sea transport was held up temporarily when the US closed its airports following the attack. Our export-oriented sectors like manufacturing, tourism and transport services will slow further as a result of weaker US demand in the short-term.

The situation is still fluid and will depend on how events unfold in the coming months. The chain of events set off by the terrorist attacks has not yet fully played out, as the US considers its response, and as terrorist groups undoubtedly plan further moves. But the events last week have already changed the world. There will be greater uncertainties, and all economic forecasts will have to be reviewed. What is clear is that an economic recovery in the short term is unlikely. At this point, we expect our overall economic growth this year to become negative. Singaporeans must therefore be prepared for a more prolonged downturn.

Over the last few months, the Government has been working on a second package of additional measures which might be needed to help ease the burden on companies and Singaporeans. The World Trade Centre attacks have increased the urgency of the second package and the scale of measures required. We are still finalising the package. The Finance Minister will address the question on the timing of the package in his reply.

Mrs Lim Hwee Hua (Marine Parade): Mr Speaker, Sir, I would like to ask the Minister a supplementary question in terms of commenting conceptually on the extent of pump priming that the Government would consider in the circumstances.

BG George Yong-Boon Yeo: Mr Speaker, Sir, I do not think we are ready yet to announce the details of the package but conceptually there will be a modest amount of pump priming.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, may I ask the Minister whether his Ministry has now revised the GDP forecast for the whole year? I think the last forecast was minus 1.5%.

BG George Yong-Boon Yeo: We expect the flash forecast to be out on 7th October and when that forecast is out, we will also revise our GDP estimate for this year.

Mr Hawazi Daipi (Sembawang): Sir, in a worst case scenario, how many jobs does the Minister expect to be lost as companies are directly affected by the downturn?

BG George Yong-Boon Yeo: Mr Speaker, Sir, the situation is still fluid because the dust of the recent disaster has not yet settled. The markets are still volatile. I think it is too early for us to be overly sure of what the ultimate impact would be. The war has not yet started. We do not know how long it will last and what all the consequences will be. We are on the pessimistic side, so we expect unemployment this year and next year to be worse than what we had earlier projected. As to how much worse, it is premature to say.

Mr Zulkifli Bin Baharudin (Nominated Member): Sir, as in the US, which has announced a bail-out package for its airline industry, would the Minister consider bailing out SIA should this become necessary, at least to save jobs because SIA has announced plans to retrench some workers?

BG George Yong-Boon Yeo: On the issue of insurance, Government has already taken a quick decision yesterday.

On preserving jobs in the airline industry by Government subsidy, I think that would be a very bad principle. I do not see at this point in time any request for a bail-out of SIA.

Mr Leong Horn Kee: Sir, I am not asking for a bail-out package but I want to ask the Minister whether he would target specific industries that would be more affected particularly by this impact of the terrorist attacks on the US, for example, airline-related industry, tourism, insurance and others that are more badly affected.

BG George Yong-Boon Yeo: Mr Speaker, Sir, I do not think we should be reacting to what might be transient changes because of the terrorist attacks in New York and Washington. There is naturally an over-reaction and many people have reduced their travels. Many meetings have been cancelled and this has had an immediate impact on airlines, hotel and convention business. The dust will settle and things will assume a certain normality and we will have to analyse the situation then and decide what our appropriate responses should be.