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Forecasts for 2009
Budget key to saving jobs, luring global firms 'Two themes will dominate the first half of next year - recession and Government. Singapore may be headed for the worst recession, in terms of both duration and depth, in its history. It may well last four to five quarters, longer than the 2001 tech crash and 1985 to 1986 recessions, which lasted for four quarters in terms of GDP (gross domestic product) year-on-year contractions. Growth in the first quarter year-on-year could be worse than the sharpest contraction previously seen of 6.5 per cent in 2001. The Government will have to play a more active and decisive role, given that both exports and private investments are collapsing. The Jan 22 Budget will be key. Not only does it have to help cushion the impact of the recession on ordinary Singaporeans, but it must also find ways to save jobs in the face of worldwide consolidation as companies are forced to decide on where to shut down, where to cut and where to stay. Easing the credit crunch and financing risks faced by small and medium-sized enterprises (SMEs) and larger listed companies will also be needed as a collapse or bankruptcy of a good quality Singapore company next year could shake confidence and markets. The Budget will also be key in making the case on why global companies and financial institutions need to stay in Singapore, and not Hong Kong or any other city. In tough times, small differences in tax treatment, operational costs and wage costs may tip the balance on location decisions and jobs.' Short-term prospects bad, but help at hand 'What was originally a downturn stemming from the volatile pharmaceutical sector has now spread far and wide...and taking a heavy toll on Singapore's exports. But worse is that the more domestically-orientated parts of the economy are also succumbing and short-term prospects are not good. After an extraordinary period of strength, the labour market is likely to buckle as well. But there are reasons for optimism, such as the positive effects stemming from the huge Obama fiscal package. Meanwhile, Singapore's Budget will have a range of goodies, both for households and companies, as the Government attempts to stimulate the economy. Singapore is also well-placed to benefit from what is already the biggest drop in commodity prices the world has seen in at least 50 years. This will help support real personal incomes and profits. The economic situation looks dismal now and this will remain the case for a few more months. But there is light at the end of the tunnel and it is not the proverbial on-coming train. In the meantime, it seems wise to keep a cushion of savings and look forward to brighter times. At rock-bottom now, upturn ahead 'I'm actually quite positive about 2009 because 2008 was so bad. We have more or less bottomed out in my opinion. Everything of an investible nature has already fallen to rock-bottom prices, markets have fallen to very cheap levels. You would need bad news of an unprecedented nature to faze investors. Yes, there will continue to be bad news for the first two quarters but people have underestimated the extent to which things deteriorated in the last quarter. I view 2009 as a year that will surprise a lot of people on the upside. We have seen markets fall by half - the last time that happened was the Great Depression. Stocks have the most upside gains now. For Asian equity markets, Singapore and China look good. Commodities will also be interesting. Third World economies will continue to grow no matter what happens in the US, so demand for these will continue to outstrip supply. Oil at $30 (per barrel) now means there is room for prices to go up.' Layoffs may get worse in January '2009 is going to be as bad as it already is. We are already in an economic contraction, and December saw the highest number of job cuts in the last 26 years. Multinationals that drive a lot of Singapore's employment have cut back staff because they want to start off 2009 with better cash flow. January will be difficult. General level of layoffs are at an all-time high and I wouldn't be surprised if there were more in January and February, across more sectors. The downturn may seep into certain sectors that may not have felt its full impact yet. Our main opportunity is with regional trading partners. If we were to have a V-shaped recovery, then it would start in the third quarter next year. Employers should look at this as an opportunity to right-size their business, rather than downsize it. The problem with retrenchment is, when you let go of people who are average, you de-motivate people who are good. Employees who want to retain their jobs should keep a positive attitude. See if you can take on additional responsibilities. And manage your expectations regarding salary increases.' Slow recovery with false starts 'Investment markets tend to move before the real economy does, as there's always a lead-lag effect. So will things bottom out next year? And if so, will it be in a U-shape or L-shape recovery? We may bottom out in the later part of 2009 or 2010, but even if we do, it is highly unlikely that we will see a recovery to old levels very early on. The key for investors next year will be patience. There will be a lot of false dawns. Things will look like they have turned the corner and then suddenly you get a piece of bad news. There are lots of opportunities in terms of what you can do with your money, but the biggest danger is you end up being locked up for a long time. If you go back to the 1973-1974 oil crisis, the bear market lasted seven years till 1981. There is a possibility that it may happen again. A lot depends on how quickly the credit-creation cycle can come back because that is where the heart of the whole crisis is right now. Central banks are cutting interest rates, governments are backing the banks. The worst-case scenario is that after all this, the financial system does not right itself over the course of next year. Then what is going to happen? Governments and central banks won't have any ammunition left.' This article was first published in The Straits Times on December 22, 2008. |
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