Uncertainties remain in global economy, with US-China trade war being biggest risk: Chan Chun Sing
SINGAPORE: Singapore is “cautiously optimistic” about the economy, but there remains several global uncertainties, with the biggest being the relationship between the United States and China, said Trade and Industry Minister Chan Chun Sing on Monday (Jan 6).
With Washington and Beijing set to sign a “phase one” trade deal on Jan 15, the aversion of further trade tensions is “positive news” for all countries, he added.
“This is the most important bilateral relationship for both countries, and indeed the entire world.
"We hope that this is the first step towards putting the relationship back on a stronger footing,” said Mr Chan in Parliament.
US-CHINA CHALLENGES GO BEYOND TRADE
There are deep structural issues between the two countries and the partial trade deal will form the basis for both sides to establish a “strategic trust”, he added in a supplementary response to Bishan-Toa Payoh GRC Member of Parliament Saktiandi Supaat.
These issues include differences in how the US and China think their economies should be structured, trade relations and subsides for research and development in the technology space, among other things.
“I think both the US and China are very clear that the challenges go beyond the trade numbers,” Mr Chan said, adding that political dynamics in the US this year could also throw up "some surprises".
“While we are cautiously optimistic and cheered by the phase one trade deal, there are still many issues to be resolved in time to come between the US and China.”
Another global uncertainty, according to the minister, is Britain’s exit from the European Union (EU).
Based on the draft withdrawal agreement, the immediate impact of Brexit is likely to be “limited” as the United Kingdom will be functionally treated as an EU member state and remain a party to the EU’s international agreements, such as the EU-Singapore free trade agreement, until at least the end of 2020.
But this may change depending on what the UK Parliament decides in the coming weeks, said Mr Chan. What will happen after 2020 has also not yet been determined.
Singapore is therefore working with the UK on an economic agreement to maintain continuity in our economic relations after the EUSFTA no longer applies to the UK, he added.
INEQUITABLE DISTRIBUTION OF GAINS FROM GLOBALISATION: CHAN CHUN SING
Mr Chan said these uncertainties, including those in other economies such as Hong Kong, are “manifestations of a deeper unhappiness over the inequitable distribution of gains from globalisation”.
That is why the multilateral trading system, which has underpinned decades of economic integration and free trade, is under significant stress. The risk of a fragmented trading system will grow, given how the World Trade Organisation’s (WTO) Appellate Body has been non-functional since Dec 11, he added.
“There will be severe consequences for all WTO members – including Singapore – should trade, talent, and data flows become disrupted,” the minister said.
There are also unanticipated issues, such as rising tensions between the US and Iran after top Iranian commander Qasem Soleimani was killed on Jan 3 in a US strike.
“Any escalation between the two countries may portend further instability in the Middle East which could have negative implications on the global economy, including Singapore,” said Mr Chan.
STRATEGIES TO GROW THE ECONOMY
He noted that Singapore, being a small and open economy, was affected by macroeconomic conditions in 2019.
For the first 11 months of last year, non-oil domestic exports declined by 10.1 per cent on a year-on-year basis.
Official flash estimates released last week also showed the economy grew by 0.7 per cent in 2019, a marked slowdown from 2018’s 3.1 per cent and the lowest in a decade.
Looking ahead, policymakers are penciling in a modest pick-up in growth next year – ranging from 0.5 per cent to 2.5 per cent – on the back of a slight uptick in world economic growth and a gradual recovery in the global electronics cycle.
“Even though we are cautiously optimistic, there remain several uncertainties in the global economy,” said Mr Chan, although he stressed that it is “not all just doom and gloom”.
He cited the digital economy as a “major” opportunity for Singapore as digitalisation enables small countries to transcend size and geography. It also helps enterprises to penetrate new markets, he said.
The Government will help businesses to navigate challenges and seize opportunities.
Singapore has to adopt a long-term perspective in its economic strategies even as it tackles short-term headwinds, he added, before going on to elaborate the three strategies in place.
The first is about strengthening Singapore’s fundamentals to set it apart from the competition.
Referencing a speech he made on this last July, these include having a stable political environment with a united leadership, the rule of law and pro-innovation regulatory environment, among other things.
These strengths are recognised by the international community, said Mr Chan, adding that the Economic Development Board attracted more than S$8 billion of investment commitments last year despite the global uncertainties.
This figure reflects investments in high value-added sectors, such as electronics, aerospace and pharmaceuticals, and does not include those in other sectors, such as the S$9 billion expansion of the country’s two integrated resorts.
“The investments will create many good jobs for Singaporeans, and they reflect the global business community's confidence in our future,” he said.
Second, the Government is helping Singapore companies and workers to internationalise.
Further initiatives to help businesses transform and build stronger capabilities will be announced at the upcoming Budget.
Third, Singapore is pursuing new growth opportunities. For example, new industry niches, in areas such as additive manufacturing, robotics and sensors, are being developed through the work of the Future Economy Council and the Industry Transformation Maps.
These build on the country’s existing strengths in sectors, such as electronics and precision engineering, and will enhance Singapore’s position in global value chains, said Mr Chan.
“Singapore cannot completely insulate ourselves from ups and downs in the external environment but there are steps we can take to strengthen our economic competitiveness and build stronger capabilities in our enterprises and workers,” he added.