The government has pledged $1.5 billion to help firms get credit. It will run a bigger budget deficit. It will announce in January 2009 a package of measures to stimulate domestic demand and create jobs. In many ways, Singapore is well-positioned to ride out what is likely to be a prolonged global recession and weak regional demand for its goods and services. Its public finances are sound and it can run budget deficits without increasing the tax burden of future generations. The large pool of foreign workers – about one in four workers in Singapore is a non-citizen – provides a buffer against a sharp rise in unemployment. Over the years, the wage system has become more flexible, with a greater proportion of wages paid as a variable component. Employers can adjust costs better and so need resort less to job cuts.
Commodity and oil prices have fallen sharply in tandem with the spreading global recession. Inflation in Singapore, which was at a record high in the first half of 2008, has moderated. The outlook is for prices to rise by 1-2 per cent in 2009, down from 6 per cent in 2008.
The government has projected GDP growth to be between plus two and minus one per cent in 2009. This forecast may turn out to be optimistic if countries take measures to protect their industries. Several countries including India and Brazil have already raised tariffs to protect key industries. Others may follow. A retreat from free trade would endanger the concerted efforts governments are making to revive global demand. For its part, Singapore will use every opportunity it has to stress the importance of free trade to global prosperity.
With the world struggling to cope with the worst recession in half a century, Singapore has its work cut out as APEC chair for 2009.
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Pang Eng Fong is on the Faculty of the Lee Kong Chian School of Business, Singapore Management University and was Dean of the School from 2006 to 2008. He was formerly Singapore’s Ambassador to the European Union.
This is part of the special feature: Reflections on developments in Asia in 2008 and the year ahead