Bleak outlook for Singapore
Hardev Kaur (Mar 6 2003)
Singapore, which once boasted the
regions best economic performance, faces unprecedented challenges
including a lack of entrepreneurship among its people and rising
unemployment, which has eroded consumer confidence.
WHILE its neighbours, Malaysia, Indonesia and Thailand, were
subjected to currency manipulations and speculations, Singapore's
economy escaped the financial crisis in 1997-1998, registering
Gross Domestic Growth (GDP) of 1.3 per cent in 1998. In fact the
republic's economy was once one of the region's best performers,
enjoying 10.3 per cent growth in 2000. In 2001 it fell into its
worst recession since the 1960s, hit by a slump in exports due to
the world economic slowdown and the collapse of the hi-tech
sector.
It registered a growth of 2.2 per cent last year and its outlook
remains uncertain. Malaysia, on the other hand, recovered from the
financial crisis to record a growth of 4.2 per cent.
The impact of the sluggish world economy and the increased
competition from the region and emerging China are beginning to
have an impact on Singapore's economy. It faces risks of slower
growth, rising structural unemployment and new uncertainties.
According to the republic's Deputy Prime Minister Lee Hsien Loong,
"Singapore is at a turning point". Lee, who is also Finance
Minister, said Singapore faces "not just greater economic
volatility but also new political and security
uncertainties".
Singapore is not completely over the 2001 recession and Lee says
"competition is keener and changes are coming faster..." Reports
point out that the "iron bowl" of job security is cracking in
Singapore as government bodies and state-linked companies alike
trim their workforce in a massive restructuring exercise.
Singapore's unemployment has risen from 3.3 per cent in 2001 to 4.4
per cent last year and could rise above 5.5 per cent. The outlook
is uncertain and downside risks remain, according to Tan Leng Leng,
director for Research and Statistics in Singapore's Ministry of
Manpower.
Layoffs have been on an unprecedented scale. "It certainly is a
sign of the times for Singapore Inc," said David Cohen, economist
from MMS International. Workers struggling with the current
economic slowdown were disappointed that the Budget tabled in
Parliament last week did not bring much monetary relief.
Preliminary estimates indicate that 18,900 workers were retrenched
in Singapore last year and this is in addition to the 25,800
retrenched in 2001. In the first two months of 2003, PSA Corp
announced that it is cutting its force by 800 or 13.3 per cent for
the first time in more than 20 years. The supremacy of PSA, which
operates one of the busiest ports in the world, has been challenged
with the emergence of rival ports in the region. In fact it lost
two of its prominent clients Danish firm Maersk Sealand and
Taiwan's Evergreen Marine Corp over the last two years to Tanjung
Pelepas in Malaysia.
This prompted PSA to overhaul its strategy, which includes offering
clients rebates, but that strategy has proved to be
insufficient.
Neptune Orient Lines is also cutting 1,100 jobs worldwide of its
12,000 workforce worldwide. Chartered Semiconductor will cut 500
jobs this month when its wafer fabrication facility closes. The job
losses are not limited to the private sector. The Housing and
Development Board, the Government's housing arm, is reducing its
labour force, shedding between 2,500 and 3,000 of its 8,000
workers. The retrenchments will add to the pain Singaporeans are
already enduring due to a severe downturn in 2001 when the economy
produced a two per cent contraction. Singapore is losing its edge
due to its rising costs. According to Prime Minister Goh Chok Tong,
Singapore needs "surgery" to create new growth in the city state's
trade-driven economy. The deficit budget aimed at stimulating
growth and cutting business costs lacked in major policy
initiatives. The Finance Minister tabled the third straight budget
deficit for the republic which has boasted of budget surpluses
since the 1970s.
Analysts did not expect it to have much impact on the overall
economy. "It's been a major disappointment ...much ado about
nothing," Joseph Tan, economist at Standard Chartered Bank is
reported as saying. The business expectations survey shows that
manufacturers expect business conditions to remain lacklustre in
the first half of this year. Sentiments have also worsened among
firms in the commerce, real estate, transport and storage sectors.
Singapore's economy has undergone a radical change in recent years,
most notably in the financial sector where the Government has
introduced a series of changes aimed at pushing the local players
to become more competitive. Some of the world's well-known lenders
such as Standard Chartered Bank and HSBC were granted licences to
offer a full range of financial services and the securities
industry was liberalised. But even so the financial services sector
reversed sharply from a 3.7 per cent growth in 2001 to a
contraction of 4.8 per cent in 2002.
The stockbroking activity was adversely affected by poor sentiments
in view of the global uncertainties. The outlook for Singapore is
mixed. With an uncertain world economic scenario, a possible US-led
war against Iraq, rising oil prices and contracting world trade,
Singapore is facing a bleak future.
Salomon Smith Barney points out that in terms of contagion,
Singapore "should suffer greatly" due to its open economy, oil
imbalance and tourism dependence, than Thailand or the
Philippines.
Undoubtedly, Singapore will not be the only economy to be affected
by the war. But the impact on the republic would be much higher
than others in the region as the "Singapore economy may not be in
the best of shape", according to Dow Jones. At the same time the
world economic scenario is not encouraging.
The uncertain international environment will affect trade and
services, including tourism. The "biggest challenge" for Singapore
is deemed to be from China. Its entry into the World Trade
Organisation has meant that Singapore is facing tough competition
from regional rivals. The domestic scenario is also challenging.
There is a lack of entrepreneurship among its people and consumer
confidence in the republic has been dampened by the rise in
unemployment and a decline in the stock market.
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Source:
News Straits Time 6
Mar
