Geopolitical tensions and inflation: How Singapore can weather the challenges ahead

ST's senior correspondent, Krist Boo, discusses geopolitics with Mr Stephen Tracy, COO of Milieu Insight, Mr Kurt Wee, President of the Association of Small and Medium Enterprises, and Ms Dora Hoan, CEO of Bestworld International. ST PHOTO: ALPHONSUS CHERN

SINGAPORE - In his National Day Message on Aug 8, Prime Minister Lee Hsien Loong urged Singaporeans to be psychologically prepared that in the next decades, the region might not be as peaceful and stable as it has been. Insight asked observers for their thoughts on how Singaporeans can brace themselves for these challenges.

Inflation is also expected to remain high till the end of this year. We asked economists how this might play out for businesses and consumers, and how Singapore can ride out this period.

Clarity of thought is critical

Bilahari Kausikan

Singaporeans are taking a greater interest in international affairs - as they should - but greater interest is not matched by greater understanding and that is particularly so with regard to the foremost challenge of our time: US-China strategic competition.

Too many Singaporeans seem to have bought into the trope of the 21st century being the Asian century - "Asia" being a polite way to refer to China - just as the 20th century was the so-called American century. This trope and the related idea tirelessly propagated by Beijing and its apologists, that the East is rising and the West declining, are drastic and dangerous simplifications of a far more complex reality.

Except for a relatively short and historically anomalous period between circa 1989 when the Berlin Wall came down and circa 2008 when the global financial crisis broke out, American leadership was never uncontested through most of the 20th century, just as China's leadership is being contested and will continue to be challenged as the 21st century unfolds, largely due to Beijing's mistakes, primarily the premature abandonment of Deng Xiaoping's sage approach of "hiding your light and biding your time". This is dangerous.

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Understand Singapore's vulnerabilities

Zulkifli Baharudin

We may not have understood the permanent existential vulnerabilities of Singapore. We are a small boat in the ocean, in a small wave we will bob up and down. US-China tensions and the Ukraine war might seem far away, but we are affected.

Singaporeans must also realise that we are a price taker. This means our policy options are very limited. We don't have the luxury of deciding, or saying that we are best friends with one and enemies of another. We just have to find a balance every now and then, like a see-saw. That's a permanent fact of life, so we have to be nimble.

My fear is Singaporeans have lost the alertness to all this. Something sharp could happen tomorrow and we may be finished. The world is such that Singapore must remain nimble.

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Education on security issues is key

Bilveer Singh

Geopolitical tensions have directly hit most states due to the dependence of South-east Asia and the world on imports of crude oil, natural gas and even basic necessities such as rice, wheat and eggs. The inflationary pressures caused by global conflicts have the effect of impoverishing societies and, in turn, putting pressure on national governments to deliver basic goods at affordable prices to their populace. A failure to do so can prove fatal for governments, as was evident in Sri Lanka.

With rising costs all round, national governments, including in Singapore, have to grapple with proceeding with infrastructure projects at home as health and security issues become key priorities. The sum total of basic infrastructure projects being sacrificed, insecure supply chains, rising inflation, currency fluctuations and weakening demand have increased unemployment and enhanced national public grievances.

The region also continues to suffer from uncertainties from the policies of the United States, which in the past was seen as the key security provider, leading other powers such as China and India to become more assertive regionally, partly to fill the growing power vacuum.

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Could inflation remain higher for longer?

Selena Ling

Global market attention has recently flip-flopped between concerns about rising inflation and growing recession signals.

The start of the Russia-Ukraine war exacerbated the commodity price inflation for energy as well as key food items like wheat, reinforcing the need for countries and industries to diversify relentlessly. Meanwhile, global supply chain disruptions have not been fully resolved and rising energy and food prices have impacted resource security.

With geopolitical tensions on the boil, there may be little respite on the inflationary front. Will it be deja vu of the 1970s stagflationary shock scenario?

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High inflation - a tale of two cities?

Walter Theseira

Headline inflation in Singapore breached 6.7 per cent in June, and looks set to continue rising at least till the year end. According to Deputy Prime Minister Lawrence Wong, inflation may well settle at a higher rate, especially since geopolitical uncertainty, persistent supply chain difficulties and rising costs of the green transition do not look to be dissipating any time in the near future.

But we experience inflation in different ways. Two headlines this month highlight this. A DBS study examined 1.2 million customer bank balances. It found that two-fifths of the customers experienced income gains that failed to keep up with inflation. Put another way, their real incomes have diminished since the start of the year. For the lowest income group earning less than $2,500 a month, expenses have grown almost six times faster than their salaries.

In contrast, an HSBC study projects that by 2030, 13.4 per cent of adults in Singapore will be worth more than US$1 million (S$1.39 million), a higher proportion than in any other economy included in the study, and up from 7.5 per cent in 2021. While Department of Statistics data shows inflation is now affecting high-income households to a greater extent - driven by the rising prices of cars and petrol - these are problems of a different magnitude than those faced by low-income Singaporeans.

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