Published February 28, 2009

PM sketches scenario of 8 per cent GDP contraction

By CHUANG PECK MING

	Email this article
	Print article
	Feedback

PRIME Minister Lee Hsien Loong has said it again - the economy could shrink more than 5 per cent this year. And this time he said the contraction could be as sharp as 8 per cent - much more than the official forecast of -2 to -5 per cent.

'People have asked me, 'Can it be worse than minus 5?' he said in a half-hour interview with business news channel CNBC. 'Yes, it is possible, because it depends on the global situation.'

If Singapore's exports were to fall by a third, its manufacturing output, which accounts for a quarter of gross domestic product (GDP), would also go down by a third 'because we export nearly everything we make', Mr Lee said.

'And that means GDP will go down by one-twelfth, which is about 8 per cent, unless you can make up and grow some other part - construction, for example. So I think we brace ourselves for a tough year ahead.'

This is the second time in a week that PM Lee has raised the possibility of the economy shrinking more than 5 per cent.

At a Singapore Tripartism Forum dialogue last Sunday, he told an audience of 550 employers, unionists and government representatives: 'Our GDP growth is forecast to be between minus 2 and minus 5 per cent. It could be worse if the global economy worsens, even lower than minus 5 per cent is possible.'

The International Monetary Fund last month slashed its forecast for 2009 global growth to 0.5 per cent, from a forecast of 2.2 per cent it made in November last year.

Some private-sector economists here have already started revising their growth forecasts, after the Ministry of Trade and Industry released figures on Thursday showing the economy shrank 4.2 per cent in the fourth quarter of 2008, worse than the 3.7 per cent decline estimated last month.

OCBC Bank, for example, now believes the economy will contract 4.8 per cent this year, compared with its previous forecast of a 2.8 per cent decline.

Mr Lee said that the current growth forecast of minus 2 to minus 5 per cent for 2009 - made after two revisions - is the worst since Singapore's independence. 'I think it is a realistic estimate because, if you look at the trade figures, all the countries in Asia now are having dramatic reductions in their trade,' he said.

Japan is down 45 per cent, Taiwan 40 per cent plus and South Korea more than 30 per cent. Singapore's total trade plunged 36 per cent in January.

Mr Lee also said that Singapore's unemployment rate could hit 5 per cent this year - up from 2.3 per cent in 2008. 'We see the retrenchment figures going up in the first quarter already,' he said. 'I don't know what the latest numbers are. But the last one, which the unions mentioned, was almost 5,000 in the first quarter. So the retrenchment numbers will go up, the unemployment numbers will go up.'

The government is prepared to dig deeper into the national reserves if need be, but spending money is not the answer to Singapore's current economic woes, Mr Lee said.

'(It) depends on the situation. We have to see,' he said. 'We don't want to spend all of our reserves. Neither is this a situation where (if) you spend money you will solve your problem. This is a global problem. We have to go through it.'

He said what the government can do is minimise the harm the downturn could do to Singapore's economy.

'And that's what we have done with this (recent) Budget,' he said. 'We've had a very big Budget. And if we need to do more, we will do more. We have the resources, we can do it. But it is not a problem where spending the money will cure you.'