MNCs not too worried about impact on Singapore investments from the many uncertainties in Europe
By CHEN HUIFEN AND TEH SHI NING
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(SINGAPORE) Despite a deepening recession in Europe and layoffs by British and Dutch multinational firms here, European businesses in Singapore are sanguine about their investments here.
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A check with the British, Dutch and German chambers of commerce indicates that while their members are keeping a close eye on what is happening in Europe - Singapore's biggest source of foreign direct investment (FDI) - they are not overly worried about the impact on operations here.
'Britain has been a large foreign direct investor in Singapore for decades,' said Terry O'Connor, president of the British Chamber of Commerce. 'They (British firms) are not likely to make short-term decisions. They're looking three to five years in advance. Although it's a real mixed bag, with some sectors more affected than others, nobody is indicating they will do anything more serious than general cost cutting.'
The Dutch Chamber of Commerce said members in the financial, semiconductor and electronics sectors have been most affected. But bright sparks exist in the offshore, oil and gas, and water industries, which are more resilient.
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'Even though some companies were forced to carry out retrenchment exercises, Dutch investments are not slowing down noticeably yet,' the Dutch chamber told BT in an email response. 'There is still a steady inflow of Dutch nationals - up 100 people from Q4 2008 - and we also see that Singapore remains very attractive and competitive for Dutch companies to invest in. Asia is believed to recover much quicker than Europe, which translates to business opportunities for European companies in Asia, including Singapore.'
However, business expectations are a far cry from a year ago. According to the Singaporean-German Chamber of Industry and Commerce, almost half of respondents in a recent survey said they expect no or negative growth for their businesses this year. This is an about-turn from findings in the past two years, when almost half of the companies polled reported double-digit growth.
Government measures such as the Skills Programme for Upgrading and Resilience (SPUR) have helped mitigate the impact of the economic slowdown locally, and at international level, observers are looking forward to more government spending or tax cuts.
Nanyang Technological University economist Choy Keen Meng said the European Union (EU) is 'now widely seen as the one not playing the game', even though the Group of 20 summit ended with consensus to inject US$1.1 trillion to the International Monetary Fund and other global institutions and avoided an open conflict of views between the United States and factions in Europe.
'I don't think much of a coordinated effort is likely to come out of haggling (within EU) either, to be honest,' said Dr Choy.
'But I think many more people are now confident about the US outlook in the second half of the year, so if by June we begin to see signs of recovery, Europe might just be able to hitch a free ride,' he added.
At national level, governments can afford to do more, Dr Choy believes. For instance, with Germany's GDP expected to contract 4-5 per cent this year, the German fiscal package, which emphasises access to credit and wage subsidies instead of pump-priming, seems inadequate. On the other side of the coin, supporters have argued that Europe's welfare system already provides 'automatic stabilisers' to cushion the impact on households and businesses.
Notwithstanding a lack of fiscal action from Europe, economists BT spoke to seem to agree the global downturn may be nearing bottom.
'Similar to the rest of the world, we're expecting things in Europe to bottom out by mid-year,' said David Cohen of Action Economics. 'It's not going to be the most robust recovery, but I think we're probably seeing the worst phase of contractions right now, and then later this year, while things will still be at a depressed level, they will begin to pick up.'
According to Singapore Management University assistant professor of economics Davin Chor: 'While it cannot be ruled out that the situation may yet worsen in some countries, including in Western Europe, one can be hopeful that we can avert the scenario of a crash in the major European economies, such as France and Germany.'
None of those interviewed expects the European bloc to cave in economically. But if that were to happen, it could result in a prolonged recession for Singapore, which is more dependent on Europe than the US for exports and investments. According to data from the Department of Statistics, FDI from Europe was $192.5 billion in 2007 (the latest available figure), or 44 per cent of total FDI that year. About $147.9 billion came from the EU. Comparatively, the US accounted for $49.3 billion.
On the trade front, Europe is Singapore's second-largest trading partner, after Malaysia.
'Europe's economies still make up a big proportion of Singapore's export demand - one of our major export destinations,' said Dr Choy. 'So if they do grow more, we'd benefit more, quicker. But I think if events elsewhere supersede any fiscal action from Europe, and recovery comes, Europe will recover too, and there probably will not be that much difference. I don't think world recovery will be conditional on European action, and I don't think European recovery will be conditional on more action by them, though it would help. So similarly, for the impact on Singapore.'
With additional reporting by Jessica Yeo
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