Minister Lim Hng Kiang's reply to Parliament Questions on Singapore’s economy

Question No. 465 of Notice Paper No. 118 of 2010

Question No. 472 of Notice paper No. 122 of 2010 

Name and Constituency of Member of Parliament
Mdm Halimah Yacob, Member for Jurong GRC
Mrs Mildred Tan, Nominated Member

Questions
*465. Mdm Halimah Yacob: To ask the Minister for Trade and Industry whether he can give an assessment of the impact of the European sovereign debt crisis on Singapore’s economy, including our employment situation.

*472. Mrs Mildred Tan: To ask the Minister for Trade and Industry (a) what is his Ministry’s assessment of the financial crisis in Greece and whether it has shown signs of spreading to other EU countries; (b) what will be the impact on the Singapore economy if it is not contained; and (c) what plans are needed to be put in place to ride out any volatility.

Answer
Mr Speaker, Sir, the government is monitoring the sovereign debt crisis in Europe very closely. The crisis was felt most acutely in Greece, but reflected broader concerns over the sustainability of sovereign debt in a few other Southern European economies. To date, we have not observed signs of the crisis spreading to the larger economies in Europe. Forceful policy interventions by the EU and the IMF, as well as the results of the recent bank stress tests, have reduced overall financial market volatility. While the situation remains fragile, investor risk sentiments appear focused on the Southern European economies rather than the EU as a whole.

Given Singapore’s limited trade and financial exposures to the Southern European economies at the center of the crisis, the developments in these economies have not materially affected the Singapore economy so far. In particular, our exports to the EU as a whole continued to register strong growth in recent months.

As announced by my Ministry last week, preliminary estimates indicate that Singapore’s GDP grew by 19% on a year-on-year basis in the second quarter of the year, following a similarly strong growth of 17% in the first quarter. In tandem with the economic recovery, the labor market has also improved strongly, with the seasonally adjusted overall unemployment rate declining from a recent peak of 3.3% in September 2009 to 2.3% in June 2010.

In view of the exceptionally strong economic growth in the first half of the year, my Ministry now expects the Singapore economy to grow by 13-15% for the whole of 2010.

However, the expectation of strong growth for the year does not imply that the macroeconomic risks from Europe have fully subsided. Financial instability due to the sovereign debt crisis remains a significant downside risk that could dampen growth in our financial sector, with negative spillovers to other sectors of the economy. Moreover, the implementation of the fiscal austerity measures in some European economies, combined with the weakening of the Euro, could further weaken EU domestic demand. As announced by the IMF last month, the Euro area as a whole is projected to see a very mild growth of only 1% in 2010. These developments could affect Singapore’s export performance, given that the EU as a whole accounts for 12% of our domestic exports.

Given the small size of our economy and its outward orientation, Singapore will always remain susceptible to volatility in the external economic environment. It is not possible for Singapore to fully insulate itself from the impact of any economic or financial turmoil.

Nevertheless, we can mitigate the negative impacts of economic volatility. We did so during the recent global financial crisis, because of our sound financial management and fiscal prudence, which helped to keep our financial system stable, maintain investor confidence in our economy, and provided us with the resources and confidence to introduce various measures to ride out such difficult times.

The government will continue to monitor developments in Europe and assess risks of contagion, and stands ready to respond when appropriate.