Minister's reply to Parliament questions on strong Singapore dollar policy and how Singapore can avert further shrinkage of economic growth

Question No 726 of Notice Paper No 193 of 2008

Name and Constituency of Member of Parliament
Mr Liang Eng Hwa, Member for Holland-Bukit Timah

Question
To ask the Minister for Trade and Industry (a) whether the Government will continue to adopt a strong Singapore dollar policy in view of the weaker GDP and non-oil domestic export data; and (b) whether the weakness in the manufacturing sector will extend beyond the pharmaceutical segment, leading to weaker employment prospects.

Question No 728 of Notice Paper No 195 of 2008

Name and Constituency of Member of Parliament
Mdm Ho Geok Choo, Member for West Coast

Question
To ask the Minister for Trade and Industry (a) how can Singapore avert the further shrinkage of economic growth as manufacturing exports fall in volume; (b) what measures are being taken to ensure that job losses in the manufacturing sector are minimized; (c) what is being done, either through retraining or other means, to soften the impact of retrenchment for those in the less knowledge-intensive manufacturing sector

Answer
Singapore adopts an exchange rate-centered monetary policy to maintain price stability for sustained economic growth. In setting the exchange rate policy, the Monetary Authority of Singapore (MAS) seeks to strike the right balance between inflation and growth considerations.

Since 2004, MAS has adopted a policy of targeting a modest and gradual appreciation of Singapore’s trade-weighted exchange rate, amidst robust economic growth. In its last two policy announcements in October 2007 and April 2008, MAS announced that it would allow a stronger appreciation of the Singapore dollar, through a steeper slope and an upward re-centring of its policy band, respectively. These were considered and measured responses to counter the inflationary pressures that were building up in the economy and the sharp increases in global food and fuel prices. If left unchecked, these price pressures could erode Singapore’s cost competitiveness and derail our economic growth.

Mr Liang Eng Hwa has asked whether the government will maintain the policy of an appreciating Singapore dollar, in view of weaker GDP and export figures. We recognize that a strengthening S$ could have some restraining effect on exports in the short term. There is therefore a limit to how strongly the Singapore dollar can appreciate to offset the effects of global inflation passing through to the Singapore economy.

At this stage, the current monetary policy stance remains appropriate in the context of achieving low inflation for sustained economic growth over the medium term. MAS will analyze inflation and growth data in a holistic assessment to determine the appropriate policy at its next scheduled policy review in October.

Mr. Speaker Sir, let me now proceed to answer the questions on manufacturing. The manufacturing sector contracted by 5.2% in the second quarter of 2008 because of weaknesses in pharmaceutical and electronics output. Mirroring the slowdown in these two key exporting segments, our non-oil domestic exports contracted by 5.7% in July.

A large part of the recent downturn in manufacturing can be attributed to volatility in the pharmaceutical industry. Significant swings in pharmaceutical output occur quite regularly due to changes in product mix, but these do not reflect fundamental weaknesses in the industry. In fact, employment in the pharmaceutical industry has grown steadily over the years. In 2007, pharmaceutical employment increased from about 4,000 to 4,200, when pharmaceutical output fell by 2.1%. Nonetheless, the short-term outlook for biomedical manufacturing will remain weak due to global trends such as competition from generic drugs and delays in government approvals for new drugs.

Besides pharmaceuticals, we are also seeing some slowdown in other industries. The electronics industry grew by just 0.2% in the second quarter of 2008; the chemicals industry by 1.2%. Precision engineering fell by 1.7%. All these sectors depend crucially on external demand, especially from developed countries like the US, Japan and Europe. But demand from these countries has come down considerably and is expected to remain weak for some time to come.

Notwithstanding these short-term difficulties in some manufacturing segments and exports, we have not yet seen significant numbers of retrenchments besides those arising from the closure of a Motorola plant earlier this year. In fact, employment went up by about 144,000 in the first half of this year, of which 22,000 were attributed to the manufacturing sector. But we should expect that job creation will slow down and some retrenchments may be inevitable in the manufacturing and export-oriented sectors, as they adjust their employment with the falling global demand. It is still too early to tell whether there will be significant retrenchments, but we are monitoring the situation closely.

Mdm Ho Geok Choo asked what measures the government is taking to minimize job losses in the manufacturing sector. Realistically, we cannot seek to protect every manufacturing job or to prevent job losses when the industry restructures or adjusts to slower business demand. Nevertheless, we can reduce the effect of cyclical job losses to the minimum by ensuring we have a strong pipeline of investment. Some existing jobs will be lost, but new and better paid jobs will also be created.

Our investment commitments for 2008 remain strong. In the first half of 2008, we attracted S$12.9 billion of fixed assets investments and S$4.8 billion of total business spending. These projects are expected to generate S$9 billion of value-added and more than 10,000 skilled jobs. We are confident that there is strong sustained investment momentum as evidenced by recent project announcements, including 3M's new facility to produce film coatings, Wyeth's expansion of its nutritional manufacturing facility, and Procter & Gamble's new perfume manufacturing facility. Many of the new investment projects that we are bringing in will create quality jobs for Singaporeans. We will continue to pursue such high-end investments from both established industries as well as from new growth areas such as Clean Energy, Environment and Water.

It is important that our existing workforce can be trained to meet the needs of these new industries. The government is committed to investing in training programmes to ensure that the skill-sets of our workers fully meet industry requirements.

There are joint initiatives put in place by the Singapore Workforce Development Agency (WDA) and the National Trade Union Congress (NTUC) to equip our workers with portable skills sets to meet the requirements of growth sectors. For instance, the Employment and Employability Institute (e2i) is an initiative that was launched in February this year by NTUC in partnership with WDA and the Singapore Labor Foundation. It is a one-stop shop that provides employability assessment and coaching, skills training and job placement opportunities for workers. It reaches out to a broad spectrum of existing and displaced workers with different needs and challenges, such as the retrenched workers, lower-wage workers, and older workers.

To sum up, we remain confident that manufacturing as a whole will still generate good employment for Singapore. Our strategy of constantly upgrading the sector and workforce will ensure that manufacturing remains a key part of our economy, with meaningful and well paying jobs for Singaporeans.