STRUCTURAL CHALLENGES FACING THE SINGAPORE ECONOMY

Transcription

1 STRUCTURAL CHALLENGES FACING THE SINGAPORE ECONOMY Presentation to The Singapore Economic Policy Forum 21 st October 2011 Manu Bhaskaran Vice-President Economic Society of Singapore

2 KEY TAKEAWAYS Structural changes new landscape Global environment will be harsher Slower growth, more volatility/stresses S pore structure fairly strong, adjusting External dependence high Weak equity outcomes Policy implications Build inherent capacity, social safety nets 2

3 STRUCTURAL CHANGE IN SINGAPORE S ENVIRONMENT 3

4 GLOBAL LANDSCAPE - RISKS Lower growth, more volatility risks Global growth: lower, changed composition Change in drivers of growth for S pore Structure of relative prices US Dollar down, higher oil prices Structure of competitive advantage New forms of regional integration Political backlashes in G-3 esp ly US Higher risk of nationalism, protectionism 4

5 SLOWER GLOBAL GROWTH Major economies will hurt global growth G-3: 50% of world, low growth for 5 years US: deleveraging, re-structuring Europe: austerity, re-structuring Japan: 2012 bounce then stagnation Risk of financial, political stresses shocks China: still strong but shifts down one notch Other EMs: not large enough to offset above 5

6 CHINA S WEIGHT INCREASES 6

7 CHINA STILL THE GIANT 7

8 CHANGING SOURCE OF GLOBAL DEMAND 8

9 MIDDLE CLASSES IN ASIA Rise of Middle Class (Income USD4k-17k pa) Massive growth in Asia Top in size: East Asia Rapid growth: South Asia E and S Asia middle class 8.9% of world population 7.7% of global income 9

10 STRUCTURE OF RELATIVE PRICES The shift to a multi-currency world US Dollar: decline in role and weight Role: Store/unit of value, medium/exchange Falling relative weight in global economy Deteriorating fundamentals: fiscal, etc Value: trend decline is more possible Portfolios are over-weighted to USD Implications: currency volatility Multi-polar system in transition not as stable 10

11 STRUCTURE OF RELATIVE PRICES A permanent rise in energy prices Oil prices: permanent rise Supply: shift to OPEC Demand: EMs in energy intensive phase Risk premium: higher Alternatives: unless shale oil/gas develop rapidly Implications: transport costs rise Trade and investment affected Goods with high freight costs 11

12 OIL PRICES RISE 12

13 COMMODITY PRICE OUTLOOK Indonesia palm oil, metals Thailand, Malaysia palm oil Indonesia, Malaysia gas Philippines Metals (recently) India coal, metals 13

14 COMPETITIVENESS STRUCTURE Re-industrialization of US Huge restructuring, USD down, China: moves up value chain India: manufacturing rises Manufacturing outsourcing shifts More complex pattern of production shifts 14

15 SHIFTING INTEGRATION No reversal of globalisation but Shift to regional, bilateral integration Not possible to secure worldwide pacts Intra-regional trade grows Intra-Asian trade not just components New forms of integration in Asia Cross-border: Mekong, Iskandar, Big increase in connectivity in ASEAN 15

16 POLITICAL BACKLASHES Political mood in US, EU more sour Pain of austerity, restructuring Rising inequality/vested interests gains No firm consensus in political class Political elites finding scapegoats Overall, backlash vs Washington Consensus Increased nationalism, including within ASEAN More hostility towards high finance More regulation 16

17 IMPLICATIONS Singapore faces a tougher environment Are we geared to the new growth norm? Lower growth + new markets Changing competitiveness Can we leverage off new trends? New regionalisation, USD change, Are we resilient to the risks and shocks? 17

18 STRUCTURAL CHANGES WITHIN SINGAPORE 18

19 SINGAPORE ECONOMY Parameter Assess structure of economy by: Assessment Composition External ties Efficiency Competitiveness Output: intra-sectoral changes Low local company/citizen role Rising share of external demand High profit share, low wage share Higher correlation with others Rising inflation differential Mixed productivity High returns to FDI High and improving 19

20 COMPOSITION OF OUTPUT Remarkably stable structure of sectoral output Change driven by top down, not bottom up 20

21 COMPOSITION WITHIN SECTORS Huge flexibility within sectors eg manufacturing Manufacturing: pharma, chemicals, resurgence in oil Finance: shift from ACU lending to others Tourism: Integrated Resorts 21

22 COMPOSITION OF DEMAND PCE has shrunk, so has GFCF: exports more vital 22

23 COMPOSITION OF EXPORTS Shift in export markets China, NIEs, away from US But indirect linkages mean gearing to US remains high Gearing to Chinese domestic demand remains low 23

24 DOMESTIC VS EXTERNAL DEMAND Importance of domestic demand has declined 24

25 CORRELATIONS OF GROWTH S pore correlated more with world less with region S pore Growth Correlation 1980s 1990s 2000s US Eurozone Japan China Taiwan Korea India Indonesia Malaysia Thailand Vietnam

26 INFLATION DIFFERENTIALS Singapore now inflating faster than trading partners 26

27 EFFICIENCY - PRODUCTIVITY Mixed performance on productivity Contributions to GDP Period Total Capital Input Labour Input MFP

28 EFFICIENCY COSTS, RETURNS Rising labour costs But return on equity rose ex-2008 crisis 28

29 EFFICIENCY RETURNS High returns for US investors 29

30 COMPETITIVENESS STILL HIGH Retains high share of key areas in relation to small size % World Total Net inflows Goods exports FDI Service exports

31 COMPETITIVENESS STILL HIGH Share of Global Foreign Exchange Turnover fell a tad 31

32 DISTRIBUTION OF INCOME Remains heavily skewed to profits 32

33 DISTRIBUTION OF INCOME Real expenditures of key segments have not grown 33

34 CITIZENS SHARE OF INCOME Singaporeans have a low share of national income 34

35 CITIZENS DON T OVER-SAVE Low wage share of GDP = low PCE share 35

36 STRUCTURE OF RESILIENCE Singapore Comments Overall Remains high Capacity for swift and effective policy response Fiscal Policy Little change remains high Government Effectiveness Little change remains high Monetary Policy Higher inflation cf trading partners. Governance Financial Resilience Bank strength Better policy transparency, corporate governance Higher quality assets + stronger capital base. BUT Income risk worsened. Reserves Considerably stronger 36

37 STRUCTURE OF RESILIENCE Singapore Comments External Resilience Export Diversity Export Independence External Robustness Improved destination and product diversity. Worse: even more reliant on exports. Curr account surplus doubled Stronger import cover Higher reserves to short-term debt ratio. Private Debt Sector Reserves Very strong Spike in foreign claims on local banks. 37

38 CONCLUSION: POLICY IMPLICATIONS 38

39 AIM OF POLICY Expectations of policy have changed Aim of policy: Singaporeans welfare Maximise per capita consumption not GDP Minimise economic insecurity Minimise inequality of income distribution Enhance sustainability and resilience Maximise opportunities for all Singaporeans Policy aims must go beyond GDP growth 39

40 POLICY IMPLICATIONS Some changes needed Policy Monetary Framework Fiscal Policy Social Safety Nets Development Policy Assessment Concern: Inflation differentials, asset inflation Has worked overall combined with other measures More bolstering of domestic demand in downturns More needs to be done Need to build inherent capacity 40

41 ADDRESS INEQUALITY Worst in countries where inequality widened most? 41

42 GINI COEFFICIENTS AND POLICY 42

43 DEVELOPMENT POLICY Current model needs adjusting Key weakness: role of locals Inextricably linked with equity issues Solution: emphasise inherent capacity the critical software /blueprints held by the indigenous workers and companies of a country. financial capital, local skills IP, accumulated intangible experience, management and operating processes, knowledge of markets... Boost local enterprise 43

44 DEVELOPMENT POLICY (2) Target: creation of our own Mittelstand SMEs with high engineering/other skills Expand institutional support for SMEs Small Business Administration Competition law framework Expand economies of scale Linkages with Iskandar, others Exploit global edge we have in savings Liberalise management of local savings Funding: use private sector 44

45 THANK YOU! 45