Minister is bullish about growth potential but says land and labour costs must stay competitive
Geert De Clercq and Mia Shanley
Reuters
Singapore
4 May 2007
Singapore can exceed its 3 to 5% growth potential over the next five to eight years, but will keep land and labour costs in check to remain competitive, Second Finance Minister Tharman Shanmugaratnam said on Friday.
Shanmugaratnam, who was managing director of Singapore's central bank before entering politics in 2001, told Reuters that the government is not worried about inflation despite a planned two percentage point increase in the goods and services tax, a tight labour market, and a red-hot property market.
He said the Monetary Authority of Singapore has a "good handle" on inflation and that the country had the lowest inflation in Asia outside of Japan. Singapore's consumer prices rose an average one percent in 2006 and the central bank expects average inflation of between 0.5 to 1.5% this year.
"My guess is that it will probably be closer to 1%," Shanmugaratnam, 50, told Reuters in an interview.
He also said that the strength of the Singapore dollar against the US dollar was "not a critical issue" for Singapore's exporters, and added that the strength of Asian currencies was in line with economic fundamentals.
Shanmugaratnam added that Singapore would probably grow at the top end of the government's 4.5 to 6.5% forecast range, provided the tech inventory overhang improves, as expected, in the second half of the year.
The price of oil, he said, was the one wild card that could derail economic growth prospects this year.
He said the city-state could exceed its medium-term growth potential "if we keep on doing the right things, and keep on attracting people and enterprise the way we have been doing".
"We can maintain a higher growth rate than most because we are a city-state that's much more open than most other economies. We can plug ourself into each new wave of opportunity, particularly in Asia," Shanmugaratnam said.
He said that rising property prices and higher salaries were a logical consequence of such policies, but added Singapore would remain competitive with other financial centres.
"We are quite confident that we will remain a lower-cost city among the high-value cities of the world. Amongst the financial centres of the world, we will remain lower cost for quite some time to come," he said, adding that office space costs were still about a third of those in London, 40% of those in Hong Kong and about 60% of those in Tokyo.
He said that the planned new financial centre at the city's waterfront Marina Bay would ease price pressure on office space. He also said that the government would not be shy to intervene in the property market to curb excessive price inflation but said "we are not anywhere near that yet."
"We are quite comfortable with the present stage of the cycle because the mass market is not involved in the frenzy," he said.