HIGH OIL PRICES (Impact)

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HIGH OIL PRICES:

(Impact): 6.

Mdm Cynthia Phua asked the Minister for Trade and Industry in the light of the rapid rise in world oil prices raising alarms even in the US, (a) what is the impact of high oil prices on our economic development; (b) how has this affected job creation; (c) how will high oil prices affect the ordinary Singaporean especially in terms of food, transport and electricity costs; and (d) will the Minister consider

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additional utility rebates to help needy Singaporeans manage the high utility bills as a result of the high fuel costs.

The Minister for Trade and Industry (Mr Lim Hng Kiang): Mr Deputy Speaker, Sir, despite oil prices more than doubling since end-2003, the economic impact on Singapore has so far been relatively muted. The Singapore economy grew by 8.4% in 2004, and 4.0% in the first half of this year. This is because the higher oil prices were due to exceptionally strong global economic growth, especially in the US and China. The strong growth has also lifted demand for Singapore's exports. This has more than offset the drag on domestic activities arising from higher energy costs.

The latest oil price spike, however, reflects a substantial supply disruption in the US caused by the hurricane Katrina. Higher oil prices and the interruption to economic activities caused by the hurricane are forecast to lower US GDP growth by as much as one percentage point in the second half of 2005. However, this negative impact of Katrina is expected to be transient. The US economic growth momentum should recover in early 2006.

Higher oil prices and the slowdown in the US will also affect the Singapore economy negatively. The drag on economic growth comes mainly from slower growth of Singapore's exports, accentuated by the direct impact of higher oil prices on domestic demand. However, economic growth for the rest of this year should remain positive. At this point, we continue to expect GDP growth in 2005 to be within the forecast range of 3.5% to 4.5%.

With continuing economic growth, employment should register further gains in the near term. Some businesses may adopt a wait-and-see attitude and hold back on expansion until the current

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uncertainties ease. But, overall, with rising demand, most employers will continue to add head count.

As for households, the increase in the consumer price index (CPI) has been limited, despite the surge in international crude oil prices. Between December 2003 and July this year, the CPI had risen by 1.6%. While the cost of fuel and utilities had risen 10.6% over the period, prices of other consumer items had shown much smaller increases or had declined. Food and public transport costs, for example, rose by 2.7% and 1.6% respectively. But prices of household durables, clothing and footwear were among items showing declines.

On utility rebates, the Prime Minister had included in his Budget speech in February this year the topping up of the utility accounts of households under the Utilities Save (U-Save) Scheme. The first instalment of the rebate was recently given out in July 2005. The second instalment will be given out in January 2006. Singaporeans should be extra careful in their use of fuel and electricity in this period of high oil prices. Separately, needy Singaporeans who require extra help can also turn to the various existing help schemes like the ComCare Fund programmes and Re-employment Assistance Programme.