Monday, September 14, 2009

SM Goh expresses caution about global recovery

He likens current state to a man who has survived a fall from great height

(SINGAPORE) 'Slow recovery and crawling forward' for the next several quarters - and if luck goes astray, maybe for many more years. That is the prognosis for the global economy according to Senior Minister Goh Chok Tong, in an interview with the Xinhua news agency last week.

The interview was conducted during his five-day official visit to China, which ended on Saturday.

Mr Goh likened the current state of the global economy to a man who has fallen from a great height.

'Many of his bones have been broken and his body is bruised, but he has survived,' he said, in China's port city of Dalian last Thursday.

'The worst is behind us. The stimulus package is like medication, so we are recovering from the stimulus package. But unlike a ball that has fallen from a great height, the person doesn't bounce back. Whereas a ball, if it drops from a very high position, is going to bounce up.'

Mr Goh, who is also chairman of the Monetary Authority of Singapore, echoed the views of economists, who have warned of the dangers of another dip in the economy as the financial woes of some banks and countries are not over yet.

'There is a possibility that we may see another dip. But my own view is, I think we are more likely to be crawling forward.'

Some countries have expressed recently that the 'green economy' - the proliferation of an array of new, environmentally friendly technologies - could be key to reviving world economic growth, but Mr Goh was less sanguine. While he agreed that the green economy was important in the longer term to achieve sustainable development, it could not be used as a tool to combat the current crisis, which was triggered mainly by the property bust in the United States last year.

To help jump-start the world economy, Mr Goh supported the policy of stimulating economies, but cautioned about the need to watch out for inflation.

He noted that there was a lot of scope for additional stimulus in China, because of its infrastructure needs and its ability to boost domestic demand.

However, he added that it was important for China to stimulate its domestic demand in the appropriate way - 'not in a way that will lead to a bubble in property prices or to inflation'.

Mr Goh pointed out that China could no longer depend as much as before on an export-led strategy, given that the US would still remain the largest market in the world.

'The US would still be buying, but the US consumer will in future, I believe, begin to put more emphasis on saving,' he said. 'They have been spending so much, suddenly they discovered that the country is in deficit, they themselves are in deficit with no savings and negative equity. So for a few years, I think the US will move into a saving mode, which means less demand for our goods.'

Mr Goh praised China's growth rate of 7.1 per cent in the first half of this year, given that many other major economies such as the US and Japan have shrunk.

He expressed confidence that China could achieve its 8 per cent target for the year as a whole, because the country still managed to expand despite the financial crisis.

'To get 8 per cent, China should be able to do around 9-10 per cent in the second half. Maybe if you average it out, you will get 8 per cent growth. I think China can achieve it,' he said.

Source: Business Times, 14 Sep 2009

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