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News analysis

Slowdown heightens concerns over Singapore's long-term economic challenges

Policymakers have to convince S'poreans the future will be brighter for their children despite modest growth rates

Over the Chinese New Year, I caught up with a cousin of mine.

Instead of the usual loud jokes he likes to make, the first thing he said to me was: "Things are bad."

He expects to be retrenched this year from the multinational company he works for, and his only solace is that he will have a generous package to help him tide over some of the months ahead.

It was not pleasant chatter and some of this gloomy conversation was echoed in the Ministry of Trade and Industry's (MTI) outlook for growth this year.

The global economic outlook has darkened since the start of the year, which saw wild swings in the financial markets and even scarier falls in commodity prices.

In turn, risks to global growth have risen, said MTI permanent secretary Ow Foong Pheng.

China could experience even slower growth than previously anticipated, while the sharp falls in commodity prices may lead to massive outflows of capital from regional countries.

And to drive the message home, Mrs Ow also said that the solid rise in median wages last year - 7 per cent for Singaporeans - is unlikely to be repeated this year.

Given "the challenging near-term outlook for the Singapore economy, labour demand may be more subdued this year, thereby leading to more moderate wage growth", she said.

There is no doubt that we will be in for a rough ride this year.

Most indicators point to a further slowdown in the global economy. If it does turn out that way, Singapore will not be spared.

Some economists such as Barclays Capital's Leong Wai Ho have already started to suggest that the Government should roll out measures to help companies cope with the pain at the upcoming Budget.

But Finance Minister Heng Swee Keat is unlikely to be able to do much, given that he has little wiggle room.

The March 24 Budget is the Government's first this term, and there are no extra funds in the war chest as its surpluses have been locked up as "past reserves" after its previous term ended.

But what is even more important than simply dealing with the cyclical downturn is to address the long-term structural challenges Singapore faces.

 
 

An ageing population and finite land resources have set the parameters for growth firmly in place. For Singapore's mature economy, growth rates of between 1 per cent and 3 per cent - what we will see this year - are pretty much what we should expect to see for the long term.

The question for policymakers is how to reframe these parameters so that Singaporean workers and firms can continue to believe in a brighter future.

A part of the solution is to push ahead with economic reforms such as the ambitious SkillsFuture or developing local firms so they can take off overseas.

Another, arguably more critical, part is to convince Singaporeans that the future will be better for their children.

This will take more than numbers, or policy arguments. It will take a vision of where we will go from here.

Hopefully, the vision will become clearer come March 24, when the Budget is delivered.

A version of this article appeared in the print edition of The Straits Times on February 25, 2016, with the headline 'Slowdown heightens concerns over long-term economic challenges'. Print Edition | Subscribe