Singapore headed for meltdown? Forbes article flawed: Experts

No bubble as economy is healthy, debt levels still low, say economists

Economists in Singapore have said an online Forbes article that argues that the country is headed for a meltdown is alarmist and flawed. -- ST FILE PHOTO: ALPHONSUS CHERN
Economists in Singapore have said an online Forbes article that argues that the country is headed for a meltdown is alarmist and flawed. -- ST FILE PHOTO: ALPHONSUS CHERN

Economists here have said an online Forbes article that argues Singapore is headed for a meltdown is alarmist and flawed.

They said property prices and debt levels have accelerated in recent years, but this does not mean the country is in a bubble or headed for a crisis.

Singapore's economy is diversified and still growing, unemployment is near zero amid a tight labour market, and loan levels remain low relative to asset values and savings, they added.

The article, published on Monday, predicted an Iceland-style meltdown for Singapore, drawing parallels between the two countries' large financial sectors and reputations as safe havens.

Columnist Jesse Colombo, who started warning in 2004 about the looming housing debt crisis in the United States, wrote that Singapore is in the midst of a bubble that will eventually pop and put its banks and sovereign wealth funds at risk. Mr Colombo, a self-styled "anti-economic bubble activist", has never visited Singapore but has been writing a series of articles foretelling economic bubbles across South-east Asia.

Economists whom The Straits Times spoke to described his claims as sensationalist. They said while Singapore must be mindful of the risks of interest rates rising, the Government has taken steps to curb over-borrowing.

"The rate of credit growth has been at a pace which would normally set alarm bells ringing, but it's not an inevitable collapse," said Capital Economics economist Daniel Martin.

"Big does not mean it must burst," added Standard Chartered economist Edward Lee, referring to Singapore's debt levels. Mr Lee, who was one of the first to flag Singapore's rising household debt last year, pointed out that recent stress tests have demonstrated the resilience of banks here.

Mr Colombo also warned that the property and banking sectors here would collapse when interest rates rise and households are unable to service their mortgages.

But OCBC economist Selena Ling said even if interest rates rise or property prices drop significantly, the Government has said the proportion of borrowers at risk would likely rise to just 15 per cent. "There is probably little systemic risk to the banking industry even if any significant property correction will be painful."

The Monetary Authority of Singapore, responding to media queries on Tuesday, said Singapore is not facing a credit bubble that puts it or its banking system at any risk of crisis. It said the property market is stabilising, household balance sheets are strong and the financial system is robust.

Economists also noted flaws in Mr Colombo's arguments, such as his claim that the Government's high public debt limits its ability to bail out banks in a crisis.

Bank of America Merrill Lynch economist Chua Hak Bin noted: "The high public debt is not because of fiscal deficits. About two-thirds are CPF funds, which are guaranteed by the Government but are deployed for investments abroad."

Assets held by sovereign wealth fund GIC and Singapore's foreign reserves amount to several times the public debt, he added.

Mr Martin said he was surprised the article pointed to the Government's investments in public infrastructure as a reason for a supposed construction bubble.

"When you have a country like Singapore where the population has been growing rapidly, it's understandable that you'd invest in its transport network," he said.

"And it's not just that these investments are sensible - the Government can very much afford them."

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