The next Singapore Budget will be strong, and suitable to the state of the world and what the Singapore economy needs, Prime Minister Lee Hsien Loong told reporters at the conclusion of his five-day visit to South Korea.
He said that with major economies like the United States, China and Japan slowing down, it is not surprising that the Singapore economy has been sluggish too.
But he cautioned against thinking the solution is pump-priming stimulus - trying to boost the economy through government spending and by lowering interest rates and taxes.
Instead, Singapore should take advantage of the slowness of the economy to redouble efforts at upgrading, training and productivity improvements, he said.
Presenting the Budget this year, Minister for Finance Heng Swee Keat had announced that productivity in Singapore grew by 3.6 per cent per year in the past three years, higher than the 1.6 per cent per annum growth recorded in the preceding three years, from 2012 to 2015.
The economy has slowed and is expected to grow between 0.5 per cent and 1 per cent this year. Whether the country tips into a recession depends a lot on external factors, said PM Lee. "The risks seem to have gone up, but right now the indicators are mixed and unemployment is still low.
"Corporate profits are not as buoyant as before, the leverage is going up, corporate borrowing is going up.
"If a problem worsens between the US and China, or... the current uncertainties continue, (the two countries) could go into a recession within the next 12 to 18 months. If that happens, we are in greater risk."
The markets are in flux because they want to see what happens with Brexit, the US and China, he said. "When you have a big cloud hanging over you, nobody wants to make commitments.
"So we have to understand that those clouds also affect our weather, our climate. And we are preparing for that."
A major part of such preparations is next year's Budget, PM Lee said. "Heng Swee Keat as Finance Minister and all the other agencies are working towards preparing a Budget which will be strong and suitable to the state of the world and what the Singapore economy needs."
PM Lee, who was in Busan, said the two countries were studying whether the South Korea-Singapore free trade agreement (FTA) could be upgraded.
The expansion of a bilateral air services agreement, which came into effect yesterday, was also announced during his visit. This enables Singapore and South Korean carriers to operate any number of passenger and cargo flights between any destinations in both countries.
"That's a very significant step forward, because we have been encouraging the Koreans for a long time to do this," he said.
"I think it's a good step for both countries, because it will mean more tourism, more business, and also enhance the status of Changi and Incheon as hub airports in our respective regions."
PM Lee, who attended a summit that marked 30 years of dialogue relations between Asean and Seoul, said this year's meeting was different because South Korean President Moon Jae-in is seeking to deepen ties with South-east Asia.
South Korea's policy comes amid global uncertainties and its need to diversify partnerships, said PM Lee. It is good news for Asean, he added.
"Even between Asean and Korea there is talk of an FTA," said PM Lee. "That hasn't been settled yet, but I hope we will make progress."
