Uncertainty is the only certainty

2009-04-09T22:39:00Z

Fiona Chan explains what is happening to Singapore's economy.

MATHEMATICS professor John Allen Paulos once said that "uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security".

These are wise words on how to live your life, to be sure, but they are also notably apposite to the economic situation that Singapore faces today.

With the world in the grips of the worst recession in decades, no one really knows how badly the economy is going to do this year.

Since the Ministry of Trade and Industry (MTI) first started predicting this year’s growth figure in November last year, it has already lowered its forecast twice.

On Thursday, Prime Minister Lee Hsien Loong said a third revision is on the cards next Tuesday, when MTI releases its preliminary growth data for the first quarter of this year.

The current official forecast is for Singapore's economy to shrink by between 2 and 5 per cent this year. Private sector economists are largely clustered around the worse end of that spectrum, with most predicting a contraction along the lines of 5 per cent or more.

One research house has even come out to predict a dramatic 10 per cent decline in growth this year, but PM Lee said that a double-digit contraction is unlikely.

All this number talk is well and good, but if you're a normal human being who doesn't care so much for the dismal science, you're probably wondering what all this means.

To me, there are two takeaways here. First, changing the growth forecast three times in less than five months reflects the highly uncertain and volatile times we are living in right now.

Even up to last November, the Government thought there was a good chance the economy would grow this year.

Now, not only has any chance of growth completely disappeared, but the predictions of decline have become so dire that coming up with a number has almost lost all meaning.

Consider this: any contraction beyond 4 per cent is already unprecedented in Singapore's history, so a 10 per cent contraction is pretty much unimaginable.

Still, the numbers are not wholly unimportant, which brings me to my second point.

Many economists think that the economy has already shrunk by 8 to 10 per cent in the first quarter this year, over the same time last year.

Putting this together with PM Lee's indication that this year's contraction will be in the single digits, what this essentially means is that the most severe decline in the economy must have been in the first quarter, which ended last month.

Subsequently, the economy is going to continue shrinking, but at a slower pace.

And depending on what forecast the Government comes up with next Tuesday, it will give us an idea of whether the economy is expected to shrink throughout the whole year, or start to recover in the second half.

So the numbers themselves may not make any sense – and changing the official forecast several times may make you wonder why we have a forecast at all – but in this new era of uncertainty, any additional information helps.

Get creative this recession

2009-01-16T22:00:00Z

Fiona Chan on what the upcoming Singapore budget may possibly contain.

UNUSUAL times call for unusual measures.

This aphorism has been played out all over the world in recent months, as governments roll out ever-more inventive plans to battle an unprecedented recession on a global scale.

Singapore, poised on the cusp of its worst downturn since independence, is likely to be no exception.

When it unveils its Budget next Thursday, experts expect a generous package full of the usual goodies: Tax breaks, rebates for homes and businesses, with special help for low-income households.

But they also predict that the Government could come up with some new and creative proposals fit for an extraordinary recession.

For instance, Citigroup economist Kit Wei Zheng suggests a "Hardship CPF" account to go along with the existing Ordinary, Medisave, and Special/Retirement Accounts in the Central Provident Fund (CPF). A small percentage of monthly CPF contributions could go into this account, which can then be drawn down when individuals suddenly lose their job, he said.

Another recommendation, by UBS economists, is for the Government to co-pay employers' CPF contributions.

The Government has said it will not cut the employers' contribution rate, but helping employers bear part of this burden could relieve significant stress on businesses' wage costs.

Alternatively, some economists have suggested a temporary cut to the employees' contributions.

DBS Bank's Irvin Seah added this can be a voluntary option. If households want to keep saving, or to use their CPF money to continue paying off their mortgages, they can choose not to opt-in.

Apart from CPF rates, the Government has also ruled out cuts in the Good and Services Tax. But this doesn't mean that it won't find some way to help companies and consumers cope with their costs.

Tax firm Ernst & Young has a unique suggestion: Allow GST-registered businesses to claim back more than they've spent when they make their input GST claims. For example, instead of getting a 100 per cent refund, they could receive a 120 to 150 per cent refund. This would effectively act as a GST rebate, and reach a wide range of firms of various sizes and across different sectors.

Over the course of my many conversations with economists, tax firms, business chambers, political analysts and MPs, it's clear that the Budget suggestions are many and the wishlists are long. It's unlikely that the Government will be able to please everyone - and it shouldn't have to.

Whatever the Budget turns out to contain next week, here's hoping it will at least be interesting.

Read Fiona Chan's full coverage on the Singapore budget in today's Saturday Special Report.

The Straits Times Blogs - Fiona Chan

Uncertainty is the only certainty

Get creative this recession