RECESSION (Assistance to companies)

Mr Steve Chia Kiah Hong asked the Minister for Trade and Industry in view of his statement that Singapore may slide into another recession, (a) how long and how deep will this coming recession be, and (b) what additional measures are being taken to help small and big Singapore companies to tide over this difficult period.

Mr Tharman Shanmugaratnam (for the Minister for Trade and Industry): Mr Speaker, Sir, MTI's growth forecast for this year has been revised downwards to 2-2.5%. For next year, we are forecasting 2.0 - 5.0%, although there is considerable uncertainty because of the state of the global economy and the possibility of war in Iraq.

Our growth forecast for this year reflects expectations of continued positive growth in the fourth quarter on a year-on-year basis, in other words, compared to the fourth quarter of last year. This is because our key exports markets are still growing, albeit more slowly. However, should GDP contract on a quarter-on-quarter basis in the fourth quarter, as happened in the third quarter, we will technically be in recession. We do not expect this to happen, but we cannot rule out the possibility.

In an environment as uncertain as today's, there can be little certainty in short term economic forecasts. If US consumption does not fall sharply in the fourth quarter, and the major economies do not stumble badly, we should be able to achieve positive quarter-on-quarter growth in the fourth quarter and avoid a technical recession.

Singapore's economic performance next year will also depend very much on how various external events pan out. We could see a good recovery in the economy in the second half of 2003 if the US has by then worked through the after-effects of the investment bubble of the late 1990s, and if confidence in the region around us is sustained.

As mentioned in this House last month, several of the measures the Government implemented in July and October last year to help companies during this difficult period are still in place. These include JTC and HDB rental rebates, the cut in foreign workers' levy and concessions on port dues. We have also made enhancements to the Local Enterprise Technical Assistance Scheme (LETAS) and the Local Enterprise Finance Scheme (LEFS).

We have also introduced other schemes aimed at helping SMEs. SPRING Singapore launched a Loan Insurance Scheme (LIS) in September 2002 to complement the Local Enterprise Financial Scheme (LEFS), and help SMEs get better access to financing. Unlike LEFS, which stipulates a fixed interest rate, LIS gives participating financial institutions the flexibility to decide on interest rates according to the risk profile of the borrower. This increases the chance of success of an SME's loan application. Private credit risk insurers insure 50 per cent of the loan against default. The Government co-shares the cost of the insurance premium with the SME.

The Micro Loan Programme was also set up in November last year, to provide easier access to loans for very small enterprises to meet their working capital needs. Since its launch in November last year, almost 1,000 firms have benefited from this scheme with a total of $32 million in loans.

Finally, the Government has also implemented reductions in corporate income taxes, and postponed the restoration of the CPF contribution rates. These will help all businesses during this difficult period.

The Government is monitoring the economy closely. It is looking at whether some of the earlier economic relief measures need to be extended, and whether additional ways to help businesses and workers tide over the difficult period are necessary.

Mr Tan Soo Khoon (East Coast): Mr Speaker, Sir, given the economic uncertainty and the fact that we have been told that there might be even a double-dip recession next year, would not the Government consider, as part of its strategy, a postponement of the proposed increase in the GST hike scheduled for January next year? Given the fact that the unemployment situation is set to increase further in the coming weeks or months, that people are already tightening their belts and will tighten their belts even further and therefore consumption spending will drop and businesses will suffer, and this would lead to a contraction in the economy in the months ahead, would he not consider such a move?

Mr Tharman Shanmugaratnam: Mr Speaker, Sir, a double-dip recession cannot be ruled out but it is not likely at this stage. There are some economists in the US who have painted a scenario of a double-dip in the US but the majority opinion remains that of positive growth in the US economy. Likewise for the region around us and the global economy. So we cannot rule it out but it is not a central scenario at this point, not something that we attach high likelihood to. We will have to watch the economy very carefully in the coming months and respond accordingly. Likewise, for unemployment. We are watching it very carefully but it is not a situation where we expect a sharp surge in unemployment figures at this point.

The Prime Minister has mentioned publicly yesterday that the manner of implementation of the GST increase is being considered. This is being looked at together with various other economic relief measures, whether we should extend some of the earlier economic relief measures. This is being considered very carefully. There are obviously revenue implications. I should clarify that the existing plan, as it stood, was not a contractionary plan because the GST increase was accompanied by very substantial offset measures, including the Economic Restructuring Shares that would actually have meant a net boost in the amount of funds being put into the economy by the Government. It was actually, on balance, an expansionary package. But having said that, the Government is considering very carefully the mode of implementation of the GST increase, bearing in mind the economic difficulties of businesses and workers.