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Saturday, 6 December 2008

No global depression

Instead, he sees a long downturn, then years of slow growth
By Sue-Ann Chia, Senior Political Correspondent

PRIME Minister Lee Hsien Loong does not foresee a global depression despite the current financial storm sweeping the world.

'I think that global depression is not on the cards. Governments have learnt the lesson of the 1930s and they will not repeat the same mistakes,' he said.

'So this is not the end of the world.'

Still, it could be a long downturn followed by several years of slow growth, he said, during an hour-long forum with members of the Foreign Correspondents' Association.

'The recession, to the best of the experts' judgment, may last a year, maybe if we're lucky, three-quarters (of a year),' he noted.

'But the recovery...is likely to be weaker than from previous recessions and we must be prepared for several years of slow growth.'

Mr Lee, however, noted that experts had been wrong many times before and they could be wrong again.

In a speech before the question- and-answer session, he noted that events had turned out worse than expected.

'Governments are improvising, making policy on the fly, venturing into uncharted territory, throwing every possible measure into the mix to try and restore confidence, restore stability, maintain employment and get growth going again,' he said.

Such swift action by countries such as the United States and China to counter the recession could prevent the world from sliding into a depression.

China's 4 trillion yuan (S$886 billion) stimulus package is 'a plus for the rest of the world', he said, but its impact is also marginal.

In the US, President-elect Barack Obama has assembled the 'strongest possible economic dream team'.

'But even with the best team and the best policies, it's not possible to turn things round overnight,' he said.

That is because it takes time to change habits. The Americans have to save more, consume less, and invest more in infrastructure, while Asian countries have to continue to save but also consume more.

'It will be some time before the world goes back to sustained growth again.'

Meanwhile, Singapore, which has suffered recession in the second and third quarters of this year, is taking steps to help workers and businesses cope, with a training programme and easier access to loans.

These measures precede the Budget next month. 'The most important thing we should try to do is to keep our businesses afloat and keep our people in jobs,' he said.

Lower-income families can look forward to aid in the Budget, Mr Lee added.

Economist Choy Keen Meng from Nanyang Technological University agreed with Mr Lee, saying that a long-lasting depression can be averted as policymakers worldwide produce a coordinated response and the right fiscal policies.

He said Singapore needed a 'substantial stimulus' Budget package, with cash handouts and rebates to encourage people to spend.

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