At the start of this year, we were cautiously optimistic about our post-Covid-19 recovery. With the recent reopening of borders and relaxation of safe management measures, the food and beverage and aviation sectors are rebounding strongly. SQ planes are flying again, and Changi Airport should recover to 50 per cent of pre-Covid-19 passenger levels this year. Our hawker centres and restaurants are getting crowded once more. Our construction industry, too, is recovering, with contractors catching up on their delayed projects. But since the beginning of the year, the outlook has clouded and the risks have grown considerably.
In particular, Russia's invasion of Ukraine is having a far-reaching impact on the world, and on Singapore. The war continues, and there is no good outcome in sight. The Ukrainians are fighting fiercely and bravely, and have done better than anyone expected. So the Russians are unlikely to swiftly defeat and subdue the Ukrainians, but neither can the Ukrainians beat and expel the Russians from their territory because the Russians have much larger forces.
So the fighting will likely go on for quite a while longer, and the stakes are rising. The United States now says its aim is to weaken Russia's military capabilities, to prevent Moscow from invading other countries in future. America and Nato (North Atlantic Treaty Organisation) countries are stepping up supplies of weapons and military aid to Ukraine, including heavy weapons like tanks and artillery. On the other side, Russia now sees this not just as a fight in Ukraine, but as a struggle against many Western countries. It has accused Western countries of conducting a proxy war against it, in other words, using Ukraine to fight Russia. It has threatened "a lightning-fast response" and "unpredictable consequences" for those intervening in Ukraine. It has even stated ominously that there is a real danger of World War III.
The longer the war continues, the greater the risk of this conflict escalating. Already, more destructive weapons are being used. There have been reports of possible Ukrainian attacks on Russian military bases across the border, in Russia itself. If the war spreads beyond Ukraine's borders, or if unconventional weapons are used, no one will be able to control how the situation unfolds. This is deeply, deeply worrying.
We hope that the fighting will stop, but even if a ceasefire is negotiated, I think peace will still be elusive. Too much blood has been spilt for Russia and Ukraine to simply sign a peace agreement, shake hands, and become friends and brothers again, and it is now not just between Russia and Ukraine. Relations between Russia and the many countries supporting Ukraine have also been severely damaged. More of Russia's neighbours now want to join Nato to protect themselves. Russia is angry, but these countries are afraid. Tensions and hostility will persist for a very long time.
Impact on the global order
Most fundamentally, and what matters to us, is that Russia's attack on Ukraine has undermined the global order: the basic rules and norms for countries, big or small, to interact properly with one another. That means not invading somebody else, claiming to put right "historical errors and crazy decisions", because that is a flagrant violation of the United Nations Charter. It is bad for every country, but especially for small states like Singapore. Our security, our very existence, depend on the international rule of law. That is why Singapore has taken a strong stand, condemned the attack and imposed targeted sanctions against Russia.
Beyond our security, these international tensions will affect Singapore in many ways. The ongoing conflict has made it extremely difficult, if not impossible, for countries to pursue win-win cooperation, whether at the UN, the G-20 (Group of 20) or at Apec (Asia-Pacific Economic Cooperation). In particular, it will further complicate US-China relations, which were already strained.
In the Asia-Pacific, where we live, jostling between the US and China will result in a less stable region. It will become harder for countries to remain friends with both powers. Globally, countries will be unable to make progress on the many complex and urgent problems affecting all of us, including Singapore. For example, pandemics and climate change. These are global problems, no single country can deal with them alone. But if countries are fighting with one another, there is no hope of them cooperating with each other to solve such problems.
To us, one global cooperation framework is particularly crucial, and that is the multilateral trading system. Already, before the war, countries were restricting trade and investments with other countries that they no longer trusted. With Covid-19, there was further disruption to global supply chains and the vulnerabilities of these supply chains were exposed. Countries started talking about "re-shoring" supply chains to boost self-sufficiency, or "friend-shoring" to work only with trusted friends and allies. Now with the war in Ukraine, these trends are going to be pushed even further. But it is bad for us because Singapore's economy depends heavily on international trade and investment. If countries no longer accept the rules of free trade, that makes it harder for us to continue to attract investments, to expand our export markets, to grow our economy, and to earn our keep in the world.
Cost-of-living pressures
More immediately, Singaporeans are already feeling the impact of the war on the cost of living. This is a problem all over the world, not just in Singapore. The French have recently held presidential elections, and the cost of living was the hottest issue, hotter even than immigration. Even the US, which is a net energy exporter, is experiencing the highest inflation it has seen in 40 years. Even before Ukraine, inflation was already a problem, but the war has made it worse.
Russia is a major exporter of oil and gas. Now that supply is being disrupted, European countries are trying to stop buying energy from Russia, and Russia is also cutting off supplies to punish European countries for supporting Ukraine, and that is causing a worldwide energy crunch. That is why our electricity and petrol prices have gone up sharply. Food prices have gone up, too. Ukraine is among the world's largest exporters of cereal crops (like wheat, maize, barley) and vegetable oils. Because of the war, the Ukrainian farmers are running short of seeds, fertilisers, and even fuel for their tractors, that is, assuming they can even tend their fields and farm at all. This has disrupted global food supplies and pushed food prices up, which is why bread prices have gone up in Singapore, for example.
The Government is doing all it can to cushion the impact on Singaporeans and alleviate the cost-of-living pressures. This year's Budget included the Household Support Package which contained many direct measures to help households. There are U-Save rebates, there are CDC (Community Development Council) vouchers, there are S&CC (service and conservancy charges) rebates; these will reduce the out-of-pocket expenses for nearly all households. Lower- and middle-income households, who need more help, will get more. The Monetary Authority of Singapore has tightened our monetary policy to reduce imported inflation. And we are taking steps to secure our food and energy supplies, just in case the supplies are disrupted by the ongoing war.
All this will help, but we must be prepared for more economic challenges in the year ahead. Inflation will remain high. Central banks in developed countries are tightening their monetary policies, raising interest rates. Global growth will be weaker, and there may be a recession within the next two years.
We have to face up to these realities. Singapore is tightly integrated into the global economy. Given our small size, in world markets, we are always a price taker, we have very little bargaining power. If prices go up, our prices go up; if supplies are short, we are squeezed. We cannot avoid these global headwinds.
Take energy, for example. We import nearly all the energy we use, except for the solar electricity that we generate ourselves - HDB rooftops and other buildings, but that is maybe 5 per cent of our electricity consumption at most. When oil prices were around US$50 per barrel, every year our annual imports of crude oil and natural gas cost us about $30 billion. When oil prices doubled to US$100 per barrel, which they have done since the beginning of last year, we have to pay double, too - which means we all have to pay an extra $30 billion a year for our crude oil and gas.
We can recover part of this because some of it is transformed; we refine the oil, we make petrochemicals, we sell it overseas, and we charge more. But the rest we consume; we turn on the lights, we turn on the air-conditioner, we drive our cars, we have to bear that cost - Singapore households, businesses and the Government. How much is that part which we have to swallow? The Ministry of Trade and Industry's estimate is our hit is about $8 billion a year. That is 1.5 per cent of our gross domestic product. That means that in Singapore, we have become collectively $8 billion poorer off every year. There is no escape from this.
A small voice
In the short term, government support schemes will help to share the burden fairly and ease the hardship on households, but in the long term, this does not really solve the problem. We can share the burden, but the burden is still upon us.
We must address the fundamental issue: which is that higher energy and food prices have made us collectively worse off. And the fundamental solution to this is to make ourselves more productive, to transform our businesses, to grow our economy, to uplift everyone. Then our incomes can go up, and that can more than make up for higher prices of energy and food. Then we can all become better off, in real terms.
There are limits to what Singapore can do to influence broader international trends. We will push back against deglobalisation, we will speak up to encourage the US and China to constructively engage each other. But ultimately, all these matters depend on the major powers themselves and the relations between them, and how the war in Ukraine unfolds.
We have speaking rights, but we are a small voice. Singapore has to take the world as it is and develop a strategy that works for us in this troubled environment. Bigger countries can turn inwards, they can rely more heavily on their domestic markets and produce more things onshore. The Chinese talk about double circulation - circulation within their country, circulation doing business overseas. We only have the overseas part.
Our strategy can only be one - and that is to stay open, to make our economy stronger, more resilient, and to keep on seizing opportunities for growth, developing new capabilities and becoming a more competitive economy. Because if we do that, then despite the uncertain climate, despite the pressures against globalisation, investors will still find it worthwhile to put their projects in Singapore, our exports will still find foreign markets, and we can still earn a living for ourselves in the world.
But economic success alone is not enough. Our growth must be matched by social and political cohesion. There is war in Europe, there are major troubles in the world, and great power rivalry in our region. Facing all these external troubles, if Singaporeans are not strong and united, if we allow ourselves to be split and divided, we will be done for.
