SINGAPORE - A full-blown global financial crisis, which will plunge the Republic into recession, is not on the cards for now, according to Trade and Industry Minister Lim Hng Kiang.
Still, with the euro zone crisis delicately poised, the Government is prepared to switch gears and tackle any potential fallout, he said yesterday.
Speaking ahead of the release of advance gross domestic product (GDP) estimates today, Mr Lim said that, despite weaker-than-expected fourth-quarter figures dragging down full-year growth to 4.8 per cent last year, the Government is maintaining its economic growth forecast of between 1 and 3 per cent this year.
Mr Lim was speaking to reporters on the sidelines of the opening of the Labrador Nature & Coastal Walk. He noted that the economic performance between October and last month was weighed down by the pharmaceutical and electronics sectors. Nevertheless, the Q4 figures come on the back of a better-than-expected performance in the previous quarter, he said.
Mr Lim said: "Right now, our expectation is that the global economy will slow down but there is no global financial crisis ... and we, in fact, have to prepare for a somewhat longish period of such slow growth."
But he added: "If the euro crisis is mismanaged and there is a global financial crisis, then of course we will turn into a different gear and take different actions."
Despite signs of an improving United States economy and a rebound in China's manufacturing output, Mr Lim reiterated that Singapore "cannot take things for granted".
"In the beginning of last year, the prospects looked better, and there was a lot of talk about shoots of growth. Then, we had a downturn in the second quarter. So similarly, we are watching the situation very carefully," he said.
On Sunday, at a community event, Prime Minister Lee Hsien Loong had called on Singaporeans to take this year's slowdown "in our stride". Responding to questions on what could be in store for the coming Budget, Mr Lee noted that last year's S$3.2-billion package had provided "considerable help".
Economists Today spoke to all but ruled out the prospect of a global crisis for now, which is why they expect the coming Budget to be relatively modest.
CIMB-GK economist Song Seng Wun said: "It won't be as generous as the election budget last year, and we are unlikely to see the Government embark on an expansionary budget."
Mr Song felt that the measures could focus on "helping businesses cope with a tougher environment", such as delaying the progressive increase in foreign worker levies. Keeping its powder dry, the Government will be "prepared to spend more if required to" later on, when the health of the global economy becomes clearer, he said.
Barclays economist Leong Wai Ho noted that policymakers have "probably started crisis planning" even though the situation remains under control.
"Trade-wise, the US and China have always been more important to Singapore and Asia, so if it's just Europe choking and sputtering, we can live with that. But if Europe causes a banking crisis ... that might actually curtail US confidence and spending, that's when all bets are off," he said.
Mr Leong noted the market concerns about European countries such as Italy being unable to raise enough money to roll over their debts in the months ahead. But "doomsday predictions" are unwarranted, given the backing of the European Central Bank, he said.
Concurring, Mr Song said that, in any event, "central banks and governments are a lot more prepared this time round, and reaction time will probably be much faster to ensure liquidity is available".
While Singapore's economy is headed for a slowdown, Mr Lim noted that inflation is somewhat "persistent" due to factors such as global commodity prices, "particularly fuel and oil prices". Other causes include the Government's domestic policies on housing and car ownership, he added.
Reiterating that core inflation is "not unusually high", Mr Lim said: "So if you are an owner of a HDB flat, the housing prices don't affect you, and if you are not buying a car, the car prices also don't affect you."
Nevertheless, the Government expects headline inflation numbers to fall this year, he added.