Amid fickle fortunes, Singapore could slip into irrelevance: MAS chief

The managing director of Singapore's central bank Ravi Menon reckons himself to be at the helm of a "schizophrenic" agency, toggling between seeing the opportunities to be seized and fretting over the things that could go wrong.

The city-state should steer clear of a recession if its economy chugs along at the current pace, he said. And the outbreak of Zika is unlikely to have a significant impact on economic growth here, though it is still early days yet, he added.

One fear he has is that Singapore "could easily slip into irrelevance" if it does not innovate or harness technology, given the changes in the global economy, he said at a Foreign Correspondents Association (Singapore) event on Tuesday.

"I can assure you I have more disastrous scenarios in my head that any of you could think of - it's part of our job to think of the worst - but at the same time, as a developer of the financial centre and a central bank, the Monetary Authority of Singapore (MAS) aims to promote non-inflationary growth of the economy."

Mr Menon noted that "good fortune" has played a role in the growth of Singapore's financial sector, which fired off 8.6 per cent growth a year between 2011 and 2015. If the sector continues to grow twice as fast as the economy over the next five years, financial services will make up 14 per cent of the economy in 2020, up from 11 per cent in 2010.

For now, the sector's growth has slowed significantly - to 2 to 3 per cent now, mirroring economic growth - partly because of slowing growth in China.

"Our financial centre has benefited from connecting one of the fastest-growing regions in the world with global markets, but fortune can be fickle and economic cycles will turn," he said.

He is watching one "disturbing" global trend - that of global trade growing even slower than income, which itself is paltry. In his view, the trend reflects the shift in global demand patterns; China is shifting from manufacturing to services, and to some extent, so is the US, he said.

"If shipping merchandise goods is going to play a relatively less important role than the provision of cross-border services, then obviously, some industries are going to get affected more; industries in the IT sector, in e-commerce, will probably do better," he said.

"The big story in China is not its growth rate. It's the composition of that growth. To be plugged into that growth would call for a reconfiguration, restructuring, of many economies in the region."

Through the Singapore-Chongqing Connectivity Initiative, Singapore is trying to tap into the demand from sectors such as aviation, financial services and IT, he said. These are high-value-added services with scope for expansion and trade that are beyond the large volumes associated with manufacturing goods, he said, which will moderate as growth shifts.

"That is a very pertinent issue for us. To what extent we will succeed in that effort, remains to be seen, and that's part of our own restructuring efforts in the Singapore economy, to stay relevant to what the new demands are, especially in China."

MAS is working to improve the banking structure of infrastructure projects in Asia, so that they will would draw investors with solid, long-term yields; it is also deepening its fund-management market here.

The largest challenge in Singapore likely still lies in mounting labour shortages, he added; raising productivity and efficiency is key.

"This is how the market economy works. Those who adapt, those who change, those who adjust, do better. And those who don't - they either have to merge, or re-deploy their resources. This is a restructuring process that is still ongoing. The outcome is not certain."

This article was first published on Sep 07, 2016.
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