Stagflation
Storm signals up
But Singaporeans who are addicted to the good life seem oblivious
to the danger. By Seah Chiang Nee.
May 24, 2008
AFTER
several years of explosive growth and a red-hot property market,
Singaporeans are facing the prospect of stormier times
ahead.
The
party spoiler is the prospect of a combined sharp slowdown and high
prices spilling over here.
Supported
by strong reserves and a diversified economy, the state would
likely emerge from the crisis without serious damage, but the same
cannot be said of the fate of ordinary workers and elderly
citizens.
Except
for the wealthy, people are already bearing the brunt – a drop in
living standards and savings and assets being valued
lower.
To
say that the government is worried about a world recession visiting
here – or even stagflation, a rare combination of slow growth and
rising prices – is an understatement.
Once
brimming with optimism, some senior economists have turned cautious
about prospects for the next two years.
It
is a grim reminder to Singaporeans that – despite becoming a First
World economy – their island-state remains a ship in a stormy
sea.
The
difference is that it is now no longer a “sampan” tossing about in
a turbulent South-East Asia as described by then Prime Minister Lee
Kuan Yew in the 1960s.
Today,
it has become a large vessel that sails international waters – but
nevertheless a ship it remains.
It
is vulnerable because of its size and its dependency on the world
for all its daily necessities, including oil, food, and trade, to
survive.
Some
gloomy developments include the following:
>
The huge jump in the price of oil, so crucial for its existence, to
a record US$135 (RM437) a barrel with no signs of a
let-up;
>
The prices of imported staple foods, such as rice (50% costlier
here) could stay high for the next three years, says a World Bank
official, hindering the battle against inflation;
>
Inflation has risen to 6.7%, a 26-year high, and may take an
economic downturn to control;
>
A slowdown in the housing market has prompted two banks to predict
a dramatic plunge in home values of up to 40% in the next two
years. This is bad news for nine-tenths of Singaporeans who own
property;
>
The government forecasts a sharp drop in economic growth this year
to 5.6% – sharply down from the booming 2007 (7.7%) and 2006
(8.8%); and if the US goes into recession, it could fall to
3%;
>
Respected former deputy prime minister Dr Tony Tan said that – in
the worst case scenario – the world could be hit with its worst
recession in 30 years; and,
>
The values of a portion of the tens of billions in Singapore’s
assets invested strategically in foreign banks and properties have
been wiped out, leading to fears of higher indirect taxes
here.
However,
judging from the booming shopping plazas and restaurants and the
jump in credit card usage, it appears that many people are
shrugging away the gloomy signs.
The
more cautious – usually older, crisis-hardened people – are opting
to prepare for trouble, skimming a little here and there, like
packing meals from home or cutting down on outings.
But
for the bulk, it is business as usual. They continue to shop, eat
and travel abroad for holidays.
One
retired accountant said: “Many people are spending past savings
because their earnings are not enough to cope with
inflation.”
He
believes the splurge could be due to two factors: one, insufficient
awareness of the seriousness and, two, “a younger set being too
addicted to the good life to be able to rein it in”.
Prime
Minister Lee Hsien Loong thinks that some Singaporeans are spending
beyond their means.
“We
often see families who have over-committed themselves financially –
for instance, extravagantly doing up their homes with renovation
loans, or buying expensive furniture or large-screen TV sets on
hire purchase,” Lee recently said.
“The
ones with the most serious problems have bought homes which are
larger than they can afford, and taken mortgages which they are
then unable to pay off.”
The
apparent unconcern could be due to a mistaken belief that the
financial problems of America and Europe would not affect Singapore
too badly, now that it is tied to China’s strong
economy.
“We’re
okay. What has America’s banking problems got to do with us?” is a
frequent comment I hear.
After
an age of stability and prosperity and media hype that plays up the
good news and plays down, or avoids, the bad, many Singaporeans
have been lulled into a sense of invincibility about their country
and its leaders.
They
believe that if things go wrong, the government can be relied on to
put it right.
“Well,
we are not invincible,” Minister Mentor Lee Kuan Yew told his
people following blunders that allowed top terrorist suspect Mas
Selamat Kastari to escape from detention this year.
All
this will not undermine fundamentals that include a diversified
economic base and strong reserves, an efficient infrastructure and
large overseas investments that will continue to support the
future.
Almost
a year ago, before the world crisis became apparent, Lee senior
sketched a rosy picture of a golden era and a vibrant Singapore in
five years’ time, if it played its cards right.
It
is not known if he feels the same way now, but I believe his
general optimism still remains.
Singaporeans
can only hope that this vibrancy, when it happens, will be
reflected in their individual lives – not just in the state’s
GDP.
hehe, i like the last sentence! the state's gdp or coffers
is somehow immune to reccession but not poor us!