SINGAPORE ECONOMY (Status and outlook)

Dr Amy Khor Lean Suan asked the Minister for Trade and Industry on the Ministry's assessment of (I) the impact of the Bali bomb blast on South-east Asian economies in general and the Singapore economy in particular; and (ii) the outlook for the Singapore economy in the next six to twelve months.

Mr Leong Horn Kee asked the Minister for Trade and Industry, in view of the weak flash estimates of the gross domestic product (GDP) figures for the third quarter, whether he will give an update on the status and outlook of the Singapore economy and what measures are being undertaken or considered to stimulate the economy.

Mdm Halimah Yacob asked the Minister for Trade and Industry what is the Ministry's projection of the economic outlook for the fourth quarter of this year as well as for next year.

The Senior Minister of State for Trade and Industry (Mr Tharman Shanmugaratnam) (for the Minister for Trade and Industry): Mr Speaker, could I have your permission to take Question Nos. 4, 5 and 6 together as they are related?

Mr Speaker: Yes.

Mr Tharman Shanmugaratnam: Sir, the outlook for the Singapore economy is now weaker and more uncertain than it appeared just a few months ago, in the middle of this year. Developments in the region and in the world economy are now less favourable in a number of important respects.

First, the US economy, which remains the main driver of global growth, is losing momentum. US consumers, who have so far held up the US economy, are beginning to spend less. Consumer confidence in the US in October, if we go by the latest indicators, was at its lowest level in nine years. Taking their cue from consumers, business investments in the US remain weak. New orders for durable goods fell by nearly 6% in September, which is the sharpest decline in 10 months. The outlook for the US economy has therefore weakened considerably.

Second, our other major markets like Europe and Japan are experiencing very slow growth - close to recession - due to their structural problems, and their structural inhibitions. China, while growing rapidly, is still a relatively small source of international demand. Therefore, with no major engines driving the global economy, Singapore cannot expect to avoid slow growth.

A third factor is the weaker outlook in the infocomms sector - basically, the PC and communications industry - which has direct knock-on effects on Singapore's exports. In the US, new orders for computers and electronic products fell by 6% in September - again, the most severe decline in about a year. The global semi-conductor market, which bottomed out early this year and began recovering in the first half of the year, is now softening. Forecasts of growth in global semiconductor sales for 2002 are down to 2% or less. Growth in 2003 is expected at about 9%, but this is far below the 22% that was predicted just a few months ago. Even then, there is downside risk in the industry. An absolute contraction in global semiconductor sales, which is a bellwether for the electronics industry, cannot be ruled out next year.

A further downside is the potential impact of a US-Iraq war. However, in the event of a quick US victory, the consensus is that higher oil prices will not be sustained, and the impact on the global economy will be contained.

A fifth negative is the recent terrorist attack in Bali. It has cast a shadow on the economic outlook for the region as a whole. The travel and hospitality industries will have to brace themselves for a drop in tourist arrivals over the short term. The immediate impact on arrivals has not been major, but it will be evident over the next couple of months. The consequences will be broader, and more serious, if the Bali attacks lead to a sustained fall in investor confidence in the region. It is too early to assess the impact, especially as events in Indonesia and in ASEAN continue to unfold. The ASEAN region has underlying economic strengths, and initial assessments of the damage may well prove exaggerated. But confidence matters, and investors will believe in the region only when they see credible efforts to deal with the terrorist threat.

There are, fortunately, some bright spots in Singapore's economic outlook. Our exports to China, including electronics exports, continue to grow rapidly. Our chemicals and biomedical industries are also doing well, although growth fluctuates from quarter to quarter.

Overall, the recovery in the Singapore economy this year has been narrow-based and uneven. The external environment has weakened considerably in recent months. This has also muted expectations of a recovery in consumer confidence and in domestic spending. The manufacturing recovery is slowing, while growth in most of our services industries remains weak. It is therefore likely that growth for the year will fall below the 3-4% range that we had forecast in August.

The outlook for next year is uncertain. But there is more downside than upside on the horizon in the world economy, at least for the first half of 2003. We therefore do not expect robust growth in the Singapore economy next year. MTI is watching these developments very closely. We will review and announce our growth estimate for 2002 and the forecast for 2003 when the results for the full third quarter are out in mid-November.

Mr Leong Horn Kee asked about economic stimulus measures. Some of the measures implemented in July and October last year are still in place. These include rebates on personal, corporate and property tax, JTC and HDB rental rebates, support for worker training. They also include rebates on service and conservancy charges and rentals, which were extended for five more years in this year's Budget as part of the GST offset package. The second tranche of the New Singapore Shares distributed last year can be withdrawn from tomorrow. And personal and corporate tax rates will be reduced with effect from Year of Assessment 2003, which will not only give an immediate boost to individuals and companies, but also, more fundamentally, help Singapore to become more competitive.

When we announced the $11 billion off-budget package in October last year, we did not expect it to be followed by a quick recovery. We stated then that we expected the economy to take some time to pick up. Indeed, last October and subsequently in November, we had forecast that growth for this year would be between -2% and +2%. Compared to this, the actual out-turn for this year is likely to be a little better than we had expected a year ago when the stimulus package was introduced. We cannot overcome the weak global and regional environments through a further domestic stimulus package, or increase Government spending each time there is a dip in our growth figures.

However, MTI is monitoring the economy closely. If conditions continue to weaken over the next few months, the Government will consider extending various measures to help businesses and Singaporeans tide over the difficult period.

Mdm Ho Geok Choo: Sir, in view of the fact that the Singapore economy depends to a certain extent on tourism, I would like to ask the Minister whether the recent events in Bali have affected the number of tourist arrivals in Singapore.

Mr Tharman Shanmugaratnam: Visitor arrivals for the first nine months were slipping. It was already fairly weak. Before the Bali attack in October, we were actually seeing a recovery. Visitor arrivals in the first 12 days of October, before the Bali terrorist attack, were actually growing at about 15% year on year. Remember, of course, that the fourth quarter of last year was a very weak period in visitor arrivals, coming after the September 11 attacks.

It is too early to tell what the impact of the Bali attack will be. We have seen some fall off in arrivals, some fall off in the number of meetings and conferences that had been organised, but have subsequently been cancelled. So far, the impact is not major but we expect there will be contractions in the next few months. Since the Bali attack, we still have positive year on year growth in visitor arrivals, something like 11%. But that is largely because of the weak base in the fourth quarter of last year.

Mdm Halimah Yacob (Jurong): Sir, could the Minister tell us what is the amount of investments that has been committed for next year, and how does that compare with this year? Secondly, based on what he has just described for our economic outlook for next year, what is the Minister's assessment of the impact on jobs for next year?

Mr Tharman Shanmugaratnam: Sir, on the first question, we continue to have a healthy investment pipeline. Confidence in Singapore is strong, because there is confidence in our economic fundamentals and there is confidence in the Government, as well as the people of Singapore. Our ability to respond with difficult measures, and to adjust when necessary, has been registered on investors. So, the EDB in its contacts with foreign investors has found that there is still a certain commitment to Singapore, a recognition that we are competitive and that we will make adjustments to ensure that our investment environment is a superior one. I do not have the exact numbers for the commitments for next year, but they remain healthy. And, indeed, for this year, it remains healthy.

On the Member's second question, I believe the Minister for Manpower will be taking a question shortly on the unemployment situation. So, it is best that I leave it to him.

Mr Low Thia Khiang: The Senior Minister in his answer says that it is too early to assess the impact of the Bali bombing on the economy. I would like to know from him when he thinks he will be able to make a proper assessment.

Mr Tharman Shanmugaratnam: Mr Speaker, just to clarify that I am not the Senior Minister, but the Senior Minister of State.

In the middle of November, MTI will issue its revised forecast for 2002 and estimates, as best as we can, for 2003. To be absolutely frank, the impact of the Bali bombing is an ongoing matter. It is a fluid environment. There is going to be no easy quantitative estimate of the impact. We know how many tour groups have been cancelled, how many conferences have been cancelled, and so on. That is finite. But how the situation is going to unfold in the region is still highly uncertain. And confidence is, by its nature, an intangible. We cannot put a number on it. My own assessment is that, as Mr Raymond Lim has also said, we should not over-react, we should not overstate the impact. There are certain underlying strengths in the region, and obviously the competitive strength in Singapore. But we have to watch the situation closely. Confidence will be shaped by how governments in the region respond to the terrorist threat.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, I would like to ask the Senior Minister of State, in view of the bleak outlook that he has just portrayed to us, what would the unemployment situation be like in the forthcoming quarter and next year. And in view of this weaker economy, should the Government not reconsider continuing with the Economic Downturn Relief Scheme, in the light that there may well be a continuation of the downturn and more help will be needed by the people?

Mr Tharman Shanmugaratnam: On the first part of Mr Leong's question, again, as mentioned, I will leave it to the Minister for Manpower who is going to address the issue of unemployment.

On the second part of his question with regard to the EDRS, as I have explained, we should not react by off-Budget packages or stimulus measures every time we see a dip in the growth numbers. We are no longer in recession. We are going through a dull recovery, but we have to prepare for what might be a long haul, a difficult period where the numbers fluctuate somewhat from quarter to quarter, and we have got to adjust to the situation. The EDRS has served its purpose. It was introduced at a time of severe economic difficulty and it has served its purpose. I think we should not institutionalise it. In fact, we should not institutionalise any relief scheme. We should retain our ability to respond where really necessary, and respond in a focused fashion, and make sure that we are always helping those who are truly needy.

We will continue to monitor the situation carefully. We cannot say for sure how the economic situation will unravel in the coming months. So, we will continue to watch it carefully. If the situation gets much worse, then Government will have to consider what measures to introduce. But I do not want to jump the gun on this.

Those who are needy can get help. As all of us know, they can go to their MPs, and those who are assessed to be truly needy and are trying to help themselves will receive help from us. The CCCs are quite willing to extend assistance, case-by-case, to any Singaporean who is needy. So, we are very mindful of the fact that Singaporeans are going through a difficult period and some are in need of help. We should continue to help them. But let us not institutionalise schemes which were intended to serve a one-off purpose, like the EDRS.

Ms Olivia Lum Ooi Lin (Nominated Member): Because of the heightened security in the port, especially in the United States, and the transportation of goods, I would like to ask the Senior Minister of State what impact it will have on the local businesses and what measures the Ministry has taken, or is going to take, to help alleviate the higher cost of business.

Mr Tharman Shanmugaratnam: I take it that the Member is referring to the US West Coast port strikes and the aftermath of the strikes.

There is an impact. Fortunately, a good part of our exports are not bulky. They are transported by air rather than by sea. So the composition of our exports has fortunately allowed us to avoid a major impact arising from the West Coast port strikes. But what is more important is how it is going to play out in the US. The stay order that the court has issued is for 90 days. That takes them past the congressional elections. It will be interesting to see, and we will want to watch very closely, what happens after that cooling-off period. Productivity is down very sharply in the US ports. Latest news indicates that it is down about 25%. So, things are moving slowly, goods are being jammed up, and they are not reaching the stores in time for the festive shopping period. That could weaken the US economy and have repercussions on us.

So the direct impact of the West Coast port strikes is not very significant because we were transporting principally by air, various electronic components and so on. But there could be an indirect impact, depending on how this plays out in the US, how it affects consumer sentiment, and how it affects business investment.

Assoc. Prof. Ngiam Tee Liang (Nominated Member): Sir, in order to counteract the misconceptions and the over-cautious attitudes of some countries in the region, like we have just heard earlier about Australia's situation, what measures would the Senior Minister of State and his Ministry adopt to actually publicise to help travel agencies and conference groups that have already planned for conferences to be held in Singapore next year, for instance, so that they can go out and correct the misconceptions and to indicate that the security situation in Singapore vis-a-vis the region is still very secure for us? This will, therefore, counteract some of these negative images that possibly would be portrayed out in the press.

Mr Tharman Shanmugaratnam: As Mr Raymond Lim indicated, STB is stepping up its marketing, particularly in Asian countries. Apart from the Australians, and we have seen some cancellations of Australian groups, conference groups, meeting groups, and so on, there has not been a gross misconception on the part of other countries so far as we can tell. I think, over the months, people will get more discerning. Certainly, our economic agencies and STB, in particular, will drive home the point that we are a secure place, we have taken quick measures and, indeed, ASEAN by and large is taking measures to address the problem. But there is a limit to what marketing can do. Ultimately, people will believe in the region, they will believe governments, when they see actions being sustained.