SINGAPORE: With sound fundamentals, a strong fiscal position and good progress in the restructuring of the economy, Singapore is well-placed to weather looming clouds that include a protracted trade conflict between the United States and China, said Trade and Industry Minister Chan Chun Sing on Monday (Jul 8).
Nevertheless, the Government is closely monitoring all economic developments and stands ready to step up support for companies and workers here, he said.
Mr Chan was responding to a slew of questions filed by six Members of Parliament (MPs) on the current state of the Singapore economy, the likely impact from the ongoing US-China trade and technological spat, and the Government’s strategies to cushion these risks.
Noting that the global economy has weakened, the minister pointed to the US-China dispute – which has gone beyond retaliatory trade tariffs to other areas such as restrictions on technology access and sales – as a key uncertainty.
Together with the risk of a disorderly exit by Britain from the European Union and political uncertainties in some regional economies, consumer and business confidence have been dampened, said Mr Chan.
Already, lower demand in Singapore’s key export markets has affected the country’s outward-oriented sectors, such as electronics, precision engineering and wholesale trade.
While the Economic Development Board (EDB) is on track to achieving its target for foreign investments this year – about S$8 billion to S$10 billion in fixed asset investments as previously announced – Singapore is “watching businesses’ investment decisions very closely”, said Mr Chan.
Authorities will also review the full-year growth forecast in August after taking into account all economic data for the second quarter and the latest external economic conditions, added the minister.
The growth forecast for 2019 was first narrowed to between 1.5 and 2.5 per cent in May, as Singapore’s open and trade-reliant economy logged its slowest growth in nearly a decade during the first quarter.
Central bank chief Ravi Menon said last month that authorities are reviewing growth projections again given that the economy has been “clearly affected” by a global slowdown in manufacturing, trade and investment. Growth for 2019 “is likely to be weaker than earlier envisaged”, he said at the Monetary Authority of Singapore’s annual report briefing.
Still, Mr Chan stressed that there remains “pockets of strength”, such as the information and communications, and the education, health and social services sectors.
The labour market has also remained resilient, he noted, referring to how employment continued to increase in the first quarter while unemployment remained low at 2.2 per cent.
Moving forward, Singapore’s outlook will hinge on how the trade conflict develops.
“Further tariffs will impact more goods and bring about even greater reorganisation of global supply chains. The International Monetary Fund has estimated that the US-China tariffs could cut global economic output by 0.5 percentage points in 2020," said Mr Chan.
He added that the recent decision by both countries to resume trade talks is “welcome news”, but there remain fundamental disagreements that will take time to resolve.
“Prolonged US-China tensions will further undermine global business and consumer confidence,” he said.
When asked by Bishan-Toa Payoh GRC MP Saktiandi Supaat whether Singapore is tapping opportunities arising from shifting production and supply chains induced by the trade spat, Mr Chan said: “Singapore doesn’t compete with the rest of the regional economies for the entire shifts in the global production chain.”
Singapore will not be a preferred location for low-mix, high-volume production, for instance, as these compete on the basis of scale, labour and land costs, he explained.
But what will come to Singapore is the high-mix, low-volume production, he added.
“This is where trust, standards, quality, assurance, intellectual property protection will become very important and we have seen more of such investments siting in Singapore”, said Mr Chan, as he cited the opening of British pharmaceutical giant GSK's new S$130 million pharmaceutical manufacturing facility last week.
“There will be sectors that will play to Singapore’s advantage but it doesn’t mean that everything that moves out of China or India will necessarily come to Singapore,” he said. “That’s not our strategy.”
READ: 'Good news' that US and China agreed to restart trade talks, but a long way before problems solved: PM Lee
Another challenge for Singapore lies in how the country’s major export markets perform. On this, Mr Chan pointed out the risk of China’s economy slowing down more sharply than expected due to the ongoing trade spat, while Europe needs a “decisive resolution” on Brexit.
There are also fundamental shifts in the global economy that can affect Singapore’s prospects in the medium to longer term.
He referred to the future of the multilateral trading system; the emergence of global rules, such as ongoing discussions to introduce minimum effective tax rates across countries, that may affect Singapore’s status as a global hub; and the ability to harness new technologies and create opportunities in a digital economy.
Singapore can overcome these challenges by focusing on a three-pronged economic strategy.
The first, according to Mr Chan, is to continue strengthening the fundamentals that have distinguished Singapore from the competition.
These include having a stable political environment with a competent and united leadership, a pro-business environment, superior connectivity in supply chains and distribution networks, a skilled workforce that continues to take up training, as well as a progressive tripartite partnership.
Noting how Singapore was recently ranked the world’s most competitive economy in an annual study, he said: “We must extend our lead, by continuing to build on these fundamentals and seizing new opportunities.”
Second, the country must constantly refresh its offerings to business and investors so as to seize new opportunities.
Mr Chan noted “encouraging progress” in the transformation of industries thus far. He brought up how new niches, such as additive manufacturing and advanced materials, are being created in the field of advanced manufacturing, as well as the plans to rejuvenate and expand the two integrated resorts here as part of enriching the country’s tourism offerings.
New sectors are also being developed, he said, pointing to the establishment of a new Agri-Food Innovation Park in Sungei Kadut to boost the country’s agri-tech ambitions and the new focus on precision medicine.
The latter uses each patient’s biological data to more precisely predict, diagnose and treat diseases. EDB is working to bring various biotech, medical technology and digital health players to Singapore, he said.
Companies can also expect more support when it comes to tapping regional and global opportunities.
On this, Mr Chan announced that the Scale-up SG programme – first announced during Budget 2019 – will be launched on Wednesday to help high-potential companies grow and internationalise.
Lastly, Singapore will continue to promote a conducive global and regional business environment with like-minded countries and companies.
Given how digital trade is a key driver of Singapore’s future economic growth, Mr Chan said Singapore will keep advocating for an integrated and global digital economy by co-developing international trade rules in this area, among other things.
Meanwhile, the country will aim to deepen and diversify its trade links, with negotiations ongoing for the Regional Comprehensive Economic Partnership and the Pacific Alliance Free Trade Agreement.
Concluding, Mr Chan said: “While there are clouds looming, we believe we have the fundamentals to weather the storm. Our economic fundamentals are sound, we are in a strong fiscal position, and we are making good progress in restructuring our economy.
“The Government also stands ready to step up our support for companies and workers in sustaining our core capabilities, enhancing our competitiveness and seizing new opportunities," he added.