SCOPE: 'New economy' may be sprouting in Singapore

Asian Economic News, Jan 31, 2005

SINGAPORE, Jan. 31 Kyodo

If you go to well-known shopping districts in Singapore these days, such as Orchard Road and Chinatown, you will find legions of people weighed down by shopping bags.

But it might be wrong to conclude that this is simply because the Chinese New Year holidays are just around the corner. There may well be more to it than that.

''I have a feeling that Singapore's economy has become more crisis-resistant than previously after experiencing SARS, bird flu and the effects of the tsunamis,'' said the head of a Japanese government-affiliated body's Singapore office.

Singapore's economy expanded by 8.1 percent last year in a stunning rise from the previous year's 1.1 percent growth and the government predicts it will grow between 3 and 5 percent this year.

Whether or not Singapore is developing an economy strong enough to withstand crises, many experts agree the city-state's economy is now ''new'' in that Singaporeans have become used to roller-coaster growth and adapted to the new environment.

''I think that observation is true to the extent that Singaporeans have adjusted their former expectation of high economic/wage growth and job stability, to accept a new reality that the income stream could be fickle,'' said Teh Kwee Chin, an economist at United Overseas Bank Group.

In similar vein, Takashi Terada, assistant professor at the National University of Singapore, said ''More and more Singaporeans may be beginning to feel that things will pick up soon even in bad times.''

He said such Singaporeans have realized that the country's growth trend, which has been prone to show wild swings, is coming to complete each cycle faster, adding the current boom is aided by the government's efforts to tout its economic management and stronger consumer sentiment spawned by intensifying competition in the business sector.

Prime Minister Lee Hsien Loong attributed last year's recovery to the government's economic reform policies, such as the lowering of wage costs and the introduction of an attractive tax system, aimed at sharpening Singapore's economic competitiveness.

But skepticism abounds about the Singapore economy's crisis tolerance.

''I don't think Singapore's economy has increased its capability to absorb crises,'' said a Japanese government official in Singapore.

''Whenever you talk about the future course of Singapore's economy, attention is focused on external factors -- what will happen to the U.S. economy or the Chinese economy,'' he said. ''It's not a question of what Singapore should do or can do.''

UOB Group's Teh echoed this view.

''I will not agree that there is a new crisis-resistant economy emerging in Singapore,'' he said. ''The exceptional 8.1 percent growth in 2004 is definitely more due to cyclical factors -- a global electronic products cycle, post-SARS pent-up demand, China at a peak in its cycle -- than due to a structural increase in long-term economic growth.''

''Whatever happens on the earth, the fact remains that Singapore is a small, open economy, supported by manufacturing activities catering to global demand for niche products, financial and business services catering for the regional economy and selected global financial services,'' he said.

Hiroaki Kitamura, senior economist at UFJ Bank's Singapore branch, said that in a crisis-free scenario, Singapore's economy will remain vibrant down the track.

''It's true the economy is in good shape...domestic demand is robust, the unemployment rate is low and the rate of wage hikes is on the rise,'' he said.

''Although high growth will gradually moderate in 2005, employment is not expected to emerge as a major destabilizing factor,'' Kitamura said. ''The economy will continue to be strong if no crisis occurs.''