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Published January 5, 2012
Curbs on property, foreign workers to stay: economist
Policies reflect structural shift in growth strategy
By KENNETH LIM
(SINGAPORE) Recent curbs on property and foreign workers are here to stay because Singapore is now trying to raise productivity instead of its population to drive growth, said Bank of America Merrill Lynch economist Chua Hak Bin.
The government may unveil stimulus measures to help ease transition pains, but the country will still face prolonged slow growth and high costs amid global economic turbulence, he added.
'It's probably not a good time to embark completely (on this) when the whole world is in a storm and you're trying to force this structural change,' Mr Chua said at a press conference organised by the bank yesterday.
Singapore will probably enter a technical recession in the first quarter of 2012, with a 30 to 40 per cent chance of negative growth in the second quarter, Mr Chua said.
The gradual slowdown suggests that a sharp V-shaped recovery is unlikely, he noted. Economic activity has not fallen far and fast enough from potential output to ignite a quick bounce-back, and the current foreign worker policy prevents companies from fully capitalising on growth momentum.
'The point is that even after that negative quarter, when you do resume growth, it will not be as strong an uplift as we saw in the past,' Mr Chua said.
Ever since 2011's watershed general elections, in which the ruling People's Action Party saw its share of the vote fall to its lowest level since independence, Singapore has tried to move towards a new growth model that emphasises productivity-led growth, Singaporeans first and inclusiveness, Mr Chua said.
That was partly an acknowledgement of the limitations of the previous population-led model, in which high growth was achieved at the expense of productivity and income equality, he added.
The change was a reintroduction of politics into economic policy, and a sharp change from the tone of previous years.
'It actually strikes at the heart of what Singapore was five years ago, because Singapore was pitched to be a very open place,' Mr Chua pointed out. 'Open to capital, open to foreigners, and open to ideas. I guess we're still evolving to see how far this will go.'
This change in policy direction suggests that the Additional Buyers Stamp Duty on foreigners' property purchases will not be scrapped even if the economy recovers because it targets foreigners, Mr Chua said.
But measures that affect seller's stamp duty and loan-to-value limits could be eased, he added.
Those views were echoed by other observers.
Associate professor Hui Weng Tat of the Lee Kuan Yew School of Public Policy said that Singapore's land constraints make extremely high property prices problematic for citizens. 'It doesn't make sense for Singapore to allow home prices to go sky-high,' he said. 'Why not divert your energy elsewhere?'
One property equity analyst, who declined to be named, also thought that the seller's stamp duty measures, which try to curb speculative selling, could be eased. 'It sort of prevents the market from setting a clearing price,' the analyst said.
By pursuing productivity, Singapore will be pursuing a risky strategy that can offer about 3 per cent growth, before labour force growth of about 2 per cent, in a best-case scenario, Mr Chua reckoned.
Productivity can be elusive in downturns.
'If the production surge fails, such that it proves more of a mirage, there's a danger of inflation being sticky and staying here, which actually we're starting to see,' Mr Chua said.
Echoing a common worry among economists, Mr Chua said 'we seem to be heading into a stagflation scenario because this new model actually is pushing a lot of wage costs up'.
'You're in a bad place,' he noted. 'You're heading into a recession, you're supposed to ease monetary policy, but with inflation above 5 per cent, I doubt they're going to ease.'
The government will probably announce some stimulus measures in its budget announcement in February, but is likely to leave current measures alone.
'In the budget in February, (Minister for Finance Tharman Shanmugaratnam) could probably give some rebates - the usual conservancy rebates, utility rebates for the lower income groups, the HDB households to mitigate (inflation),' Mr Chua said.
'And some of those enter the CPI, which kind of depresses the figures. But are they going to reverse the (vehicle ownership) COE policy of making sure it's only 0.5 per cent from July? I don't think so.'
For the year ahead, Mr Chua sees possible vulnerabilities from Singapore's large exposure to European banks with growing expectations that the eurozone will head into a recession. Claims from European institutions form 60 per cent of Singapore's total bank claims, or 83 per cent of GDP, he noted.
Bank of America Merrill Lynch is also predicting a soft landing for China's economy, defined as a slowdown of GDP growth to 8.6 per cent in 2012 from 9.2 per cent in 2011. A hard landing would hit Singapore's growth to the tune of about 0.7 percentage points for every one percentage point slowdown in China, Mr Chua said.
But South-east Asia should be able to weather a hard landing relatively well, in the sense that a sharp slowdown in China is unlikely to create a systemic credit crisis like in the global financial crisis, he explained.
The bank is predicting an even chance of a new round of monetary stimulus from the United States in the first half of 2012, which would send capital into Asian economies.
South-east Asian central banks will probably ease policy in response to global pressures. The Monetary Authority of Singapore could maintain its 'modest and gradual' target for currency appreciation because of high inflation, but the risk tilts toward a shift to neutral, Mr Chua said.
Mr Chua is forecasting GDP growth of -3 per cent in a bear scenario and 5 per cent in a bull scenario, with his baseline prediction at 2.8 per cent.
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