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Mr Speaker, Sir
I beg to move that this Parliament approve the financial policy of the Government for the Financial Year 1 April 2007 to 31 March 2008.
(1) ECONOMIC PERFORMANCE AND OUTLOOK
Economic Performance and Fiscal Position in 2006
Our economy has done well. It grew by 7.9% in 2006. Both our manufacturing and services sectors did well. Asset management in financial services is booming. The construction sector is seeing a resurgence.
Singaporeans have benefited from this growth. An unprecedented 173,300 new jobs were created last year, with more than half of these taken up by our local workforce. The unemployment rate went down to 2.7%. Our workers enjoyed good wage increases and better bonuses, with average wages rising by 3.2%. Overall, it has been an exceptionally good year, following two previous good years.
The fiscal position for Financial Year (FY) 2006 improved on the back of these buoyant economic conditions. I expect a budget deficit of $1.3 billion for FY 2006, much smaller than the deficit of $2.9 billion we projected at the start of the year. Operating revenues and contributions from Net Investment Income have come in higher than projected.
Global Backdrop
The outlook for 2007 is positive. Globally, the major economies are doing well. The US economy has kept its momentum. Consumer spending has been supported by more stable oil prices, offsetting the effects of a slowdown in the US housing market. Japan is continuing to recover from more than a decade of deflation. The major European economies too, especially Germany, are undertaking reforms and showing improvement after a long period of sluggish growth.
In Asia, China and India continue to power forward, pulling the rest of Asia with them. The Southeast Asian economies are growing, although some of them face difficult challenges. Vietnam in particular is stepping up its economic reforms, tapping into the forces of globalisation, and growing dramatically.
On the whole, the external picture for 2007 is positive. But it is not free of risks. A sharp slowdown in the US economy, which could happen if there is a hard landing of the US housing market, remains our biggest external risk. A disruption in global currency and financial markets, in response to concerns over America’s large external deficits, is another factor that could slow down the global economy. Widening conflict in the Middle East is a significant geopolitical risk we have to look out for, which could disrupt energy supplies and force oil prices up sharply. We must continue to watch these potential threats, and stay ready to respond quickly and decisively.
Outlook for 2007
Barring such shocks, I expect the Singapore economy to continue to do well. Our investment pipeline is strong. Last year, we attracted manufacturing and services investments that will generate over $13 billion of value-added annually to our economy and we expect similar good performance this year. Tourism, which saw a record high of 9.7 million visitors last year, should remain strong and benefit the retail as well as the hotels and food and beverage sectors. The construction sector is set to expand further, with $17 to $19 billion worth of contracts expected to be awarded in 2007. There will be more jobs for Singaporeans at all levels of the workforce, as employment expands in the retail, healthcare and hospitality industries, financial services and across the manufacturing, marine and construction sectors.
Overall, I expect the Singapore economy to grow by a healthy 4.5% to 6.5% this year, riding on the momentum of strong growth in the last three years.
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