The Government is watching closely how the economy will pan out by the end of the year and is prepared to take action when needed, Deputy Prime Minister Heng Swee Keat said yesterday.

He was responding to statistics released by the Economic Development Board on Thursday which showed that Singapore's manufacturing output fell 8 per cent year on year last month amid China-US trade tensions.

In an hour-long radio interview with CNA938, Mr Heng said that sectors such as communications and financial services are doing well despite downside risks.

Speaking to radio presenters Arnold Gay and Yasmin Jonkers, he said the Government has counter-cyclical measures in its toolkit. "MAS (the Monetary Authority of Singapore) is weighing carefully... the appropriate exchange rate and will announce this as part of the regular monetary policy cycle."

He does not foresee the need for an extraordinary Budget, but said the Government will look at a range of measures depending on the state of the economy.

What is more important are structural changes, he said, out-lining government efforts to help workers learn new skills and restructure jobs. On the international front, it means commit-ting to multilateralism and even creating new trading links and specialisations.

On the impending goods and services tax (GST) hike, Mr Heng explained that the increase in GST by 2 percentage points to 9 per cent, slated to kick in between 2021 and 2025, is needed so as not to burden future generations.

"We can spend, take on debt and (make) our future generations pay for it. Is that fair?"

The GST increase addresses rising healthcare expenditure from an ageing population, he said.

"Today, our restructured hospitals are heavily subsidised, and new drugs and treatment methods will be more costly."

He added that he will announce a significant offset package when the GST is raised.

To Mr Gay's question on how a potential Cabinet reshuffle could play out next year, Mr Heng said that he meets Prime Minister Lee Hsien Loong regularly to discuss key issues.

Ultimately, Singaporeans must stay united, he said. On potentially contentious areas such as race and religion, LGBTQ and green activism, the world is seeing increasing polarisation, especially when single issues come to dominate the national discussion.

"We must work doubly hard to make sure these do not become fault lines... and look for areas of common interest and concern.

"We will be stronger by working together, than by working apart."

Stressing the country's vulnerability, he said the key to its success is for Singaporeans to stay cohesive and united.

Observing that some bigger nations could not agree even on the most fundamental issues, he said: "They will bounce up and down and still survive, but Singapore does not have the luxury of such a wide margin."