3% growth in 2010: MM

Expect slower growth for several years until major countries recover

SINGAPORE'S economy could grow at 3per cent next year, after what currently looks like a 'healthy' fourth quarter, Minister Mentor Lee Kuan Yew said yesterday.

This is the first time a Government official has put a number to 2010 growth. The Ministry of Trade and Industry (MTI) is expected to release its official forecast for next year's growth later this month.

Ahead of that, MM Lee's comment - made in a speech last night at a community event - puts next year's growth slightly lower than private-sector economists' forecasts.

But slower-than-usual growth is exactly what Singaporeans must expect in the next several years, which is how long it will take Singapore's major trading partners to climb their way back to a full recovery, Mr Lee said.

Much of Singapore's growth relies on exports, as it is the most trade-dependent country in the world. Singapore's trade amounts to almost four times its gross domestic product, which is the total value of what it produces within its own borders each year.

'We will not resume high growth for several years until the major economies in the world have recovered,' Mr Lee said. The United States and Europe are Singapore's largest markets for non-oil domestic exports, although China is a close third.

Economists interviewed yesterday said Mr Lee's remarks on next year's growth were 'on the cautious side'.

Most believe that Singapore's economy, which has just emerged from recession by growing 0.8per cent in the third quarter against the same period last year, will expand by between 4 and 6per cent next year. MTI has said it expects this year's growth to be between minus 2.5 and minus 2per cent.

Commenting on MM Lee's remark, OCBC economist Selena Ling said: 'We expected them to announce a forecast for next year of 3 to 5per cent growth.

'Maybe the Government is just playing it cautiously. Last Friday, the numbers for unemployment in the US came in higher than expected, and maybe that's where the uncertainty is coming from.'

One out of every six American workers, or 17.5per cent of them, are now unemployed or underemployed, according to the latest US data. This is the highest level on record and probably the worst since the Great Depression in the 1930s.

Credit Suisse economist Joseph Tan, who is predicting 5per cent growth next year, attributed Mr Lee's lower prognosis to uncertainties over the global recovery, particularly about whether US consumption will falter.

In his speech, Mr Lee said American consumers are depressed and not spending because they fear they may lose their jobs. 'Everyone feels poorer,' he said.

During his visit to the US about a fortnight ago, top economic officials there told him that when the effects of their stimulus packages are exhausted, they expect private-sector demand to have picked up and be able to carry on the growth momentum.

But they warned the US would post very low growth for years, MM Lee said.

Still, the picture is not all bleak. What counts as slower growth in Singapore and Asia will remain higher than in other parts of the world, thanks to emerging growth giants China, India and Indonesia, he added.

These three large economies have huge local markets and do not rely as much on exports to contribute to growth. Even as trade slumped in the recession this year, they powered ahead to register positive growth on the strength of their own domestic consumption and investments.

An 'overflow effect' from China, India and - to a lesser extent - Indonesia will benefit countries in East and Southeast Asia, said Mr Lee. Economies in this region will also have an edge over others through their free trade agreements with China and India.

But the fact remains that America still consumes much more than China, India, or Indonesia, he added. Each American has eight times the purchasing power of a person in China, while the figure rises to 12 times in Indonesia and 16 times in India.

'We cannot expect China, India and Indonesia to make up for the decrease in exports to America, the European Union and Japan,' Mr Lee said.

He added that Singapore must find ways and means to fill up the drop in its exports. Diversifying into industries such as pharmaceuticals, which sick people still need in a downturn, has helped.

Another sticking plaster has been the cooperation between the Government, workers and unions. This can help Singaporeans get through the crisis 'without too much pain and suffering, and emerge stronger as a nation', he said.

Source: Straits Times, 9 Nov 2009