CFE expectations need to be set right

Singapore - As Singaporeans bid a sluggish 2016 adieu, expectations are running high for the Committee on the Future Economy's (CFE) report - expected later this month - to be the panacea for all economic ills.

But experts say those anticipating big bang recommendations should temper such expectations, given the constraints surrounding Singapore's more mature economy. The seeds may be cast for future growth, but there will unlikely be quick cures for Singapore's economy.

CIMB Private Banking economist Song Seng Wun told The Business Times: "There's a lot of expectation that this (30-member CFE panel) will come up with some magical solution - one that will transform this slower growth environment into something that will leap . . . But we already know we have to operate within certain constraints that all mature economies face - so it's not like there is some magic wand that the government can wave to make us suddenly vibrant again so that everyone is happy."

Still, it's not hard to see why some may be holding out for a miracle pill in the CFE report, which is due for release by end-January. For starters, latest official indications peg 2016's economic expansion at a mere one-plus per cent - a slowdown from 2015's meagre 2 per cent, which already marked the country's slowest pace of growth since 2009. The government will announce advance GDP estimates for Q4 and 2016 on Jan 3.

This has been exacerbated by heightened global uncertainty - not least due to the threat of "de-globalisation" from a looming Donald Trump presidency in the US, as well as talk of a pullback in China's overseas investments.

Said UOB economist Francis Tan: "If we were living in a year where China is doing well and the global economy is fine, people wouldn't really pay so much attention to the CFE report. But it's coming at a time where there's not much light at the end of any tunnel, so now people are hanging on to it like the last rung on a monkey bar. So people are saying: 'Don't worry, there's still the CFE.' But those expectations need to be tempered."

This is especially since earlier strategies - such as picking winning sectors to kick-start economic growth - are far more difficult to execute today, given the rapidly changing global environment and ongoing trends of technological disruption.

Retooling the economy is more difficult these days too, given Singapore's ageing demographics, anaemic productivity, and foreign labour restrictions. As a more mature economy, there is also a limit to how much infrastructure spending can boost Singapore's expansion.

"The reality of today is that you can't plan like how you used to," stressed Mr Song.

As such, economists like Mr Song, Mr Tan, and Credit Suisse's Michael Wan aren't holding their breath for "anything groundbreaking" in the CFE report.

Said Mr Wan: "It's not going to be big-bang reforms, but more of a continuation of what the government has already been trying to do over the past three to four years . . . There will likely be more of a push on technology and Smart Nation ambitions, perhaps some expansion of the SkillsFuture (initiative) to help encourage lifelong learning, and maybe some assistance to help workers cope with increased automation and disruptive technologies."

And while those hoping for more may be disappointed by Mr Wan's assessment, UOB's Mr Tan thinks there's no cause to be.

Said Mr Tan: "Traditionally, if you want to push growth, you'd stimulate capital, labour, and technology. Year after year, the government has already been stimulating all three . . . So maybe it's not a bad thing that they continue on the journey, and keep at what they've been doing."

Both he and Mr Wan think the move to restructure in a more targeted fashion - through the S$4.5 billion Industry Transformation Programme announced in Budget 2016 - is a good one, although they emphasise that its successful execution is crucial.

Noted Mr Wan: "The past policies (like the Productivity and Innovation Credit) have been prone to abuse. So by taking a more targeted approach, the general idea is right in that you can reduce the chance of abuse and cater more to individual sectors. But I think as with anything, implementation will be key - or else it could turn out essentially to be the same thing but wrapped in a different ribbon."

Schemes and industry roadmaps aside, the common theme emerging in the lead-up to the CFE's recommendations - at least according to private-sector economists - is that the CFE will be less about weaving magic to evaporate immediate concerns, and more about seeding Singapore's long-term future.

This article was first published on Jan 3, 2017.
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