BUSAN - The Finance Minister and various 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, Prime Minister Lee Hsien Loong told reporters at a wrap-up interview on his visit to South Korea.

He said that with major economies like the US, China and Japan slowing down, it is not surprising that the Singapore economy has done so too.

But whether it tips into a recession depends a lot on external factors, he said. "The risks seem to have gone up, but right now the indicators (for Singapore) 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. Depending on what external shocks may happen - for example, if you have a problem worsen between America and China, or you don't have a solution and the current uncertainties continue, they (the US and China) could go into a recession within the next 12 to 18 months. If that happens, we are in greater risk."

But he cautioned against thinking that the solution is pump-priming stimulus. Instead, Singapore should take advantage of the slower economy to redouble its efforts at upgrading, training and productivity improvements, he said, so as to make the most of the current environment.

"The markets may not be there yet because when you have a big cloud hanging over you, nobody wants to make commitments. They want to see what happens on Brexit, US and China. Even in this part of the world between Japan and Korea, there are troubles."

"So we have to understand that those clouds also affect our weather, our climate - and we are preparing for that."

A major part of these preparations is next year's Budget, Mr 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."

On Singapore's bilateral relations with South Korea, PM Lee said that both sides cooperated on cyber security and were studying whether the Korea-Singapore free trade agreement (FTA) could be upgraded.

A key announcement following his visit was the expansion of the bilateral air services agreement, which comes into effect on Tuesday (Nov 26). Under the expanded pact, Singapore and South Korean carriers can 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 is in Busan for the Asean-Republic of Korea (ROK) Commemorative Summit, which marked 30 years of Asean-ROK dialogue relations.

Mr Lee said that this year's summit was different because of South Korean President Moon Jae-in's New Southern Policy (NSP) to deepen ties with South-east Asia.

The NSP, explained Mr Lee, is partly due to uncertainties in the world, and also because of the need for South Korea to diversify its partnership with the region beyond North Korea and China - a move which is good for Asean, he said.

"Some of the summit is commemorative and ceremonial, but we hope that as a result of the NSP we will be able to get more substantive ideas going. For example, even between Asean and Korea, there is talk of an FTA," said Mr Lee.

"That hasn't been settled yet, but I hope we will make progress."

Mr Lee was in Seoul for a bilateral visit and met South Korean President Moon.

The two leaders witnessed the signing and exchange of cooperation pacts in standards and conformance, manufacturing of pharmaceuticals, smart cities and cyber cooperation.

PM Lee leaves Busan on Wednesday.