In April this year several forecasts were made by economists. The more optimistic ones forecasted a V-shaped recovery to occur in the 3 quarter of this year. The more pessimistic ones forecasted a U shaped recovery and the doomsayers predicted that we won't see any meaningful recovery until we are well into 2010.
Recently, US vice president said they underestimated the recession - unemployment which was expected to peak at about 8% hit 9.5% last month in the US[Link]. The US economic stimulus which was supposed to have created hundreds of thousands of jobs is coming under criticism. A large part of it was tax cuts demanded by Republicans and American families facing uncertain economic conditions basically saved a large part these tax cuts rather than spend it. The other part which was supposed to be infrastructure spending is stuck in bureaucracy only 10% has been given out for various projects. In the meantime, the US economy appears to be hemorrhaging jobs at a time when housing prices are declining and foreclosures go on unabated. In short, the US economy does not look good. The 'green shoots' touted by the Federal Reserve and President Obama are nowhere in sight. In past recessions, job losses were lagging indicators of the economy (economy recover first ahead of jobs) however this may not be true because between 2003-2007 many of the jobs created were service sector jobs (vs manufacturing), these jobs losses tend lead the economy.
So what is the economic future for Singapore?.....
Earlier this year and late last year there was an assumed demand collapse and a number of my friends were waiting for their pink slips because their companies lowered their production. However, companies ran down their inventories - demand did not drop to zero and production got ramped up in the 2nd quarter. That is our 2nd quarter manufacturing output shows double digit growth[Link]. But this growth is probably temporary because of the low base in the 1st quarter. There is no increase in demand. If we are lucky, we have a slow but steady recovery.
On Tuesday Finance Minister Tharman said this will be a 'hard slog to recovery' and he expects unemployment to remain high for an extended period. There is this very interesting paragraph from the article :
"He urged regional governments to work on microeconomic and social reforms to increase long-term consumption growth, such as developing social security and health insurance policies that would free Asian consumers to spend more and save less."
So what about universal healthcare for Singaporeans? What about taking care of uninsured Singaporeans? What about a social safety net? What about social security that works and provide more than one happy meal a day to retirees?
I completely agree with Minister Tharman that this is a long hard slog. It may take even take years for us to get back to the economy of 2006-2007. In the meantime, some transformation has to take place. Asians who have been underconsuming have to consume more ....but how to you make people consume more? You put in place certain social social and health insurance policies so that people can be sure that getting sick won't bankrupt them and there is a scheme in place to take care of them when they are old so they don't have to set aside so much of their income for healthcare and retirement. I would throw in a safety net so that people will be motivated to be entrepreneurs if they know the downside of failure is limited. Would you try the triple sumersault on the trapeze without a safety net? What about keeping the price of public housing affordable so that families can have more disposable income for consumption.
It is hard to imagine that we are going to sit around and wait for global economy to recover to reactivate our export-dependent economy. Do we want to go along the same economic direction we did for the past 40 years or are we going to see some reform. The past 20 years were a long slog anyway even when the economy was not in recession.......many were struggling and did not enjoy the quality of life of a 1st world country and many Singapore families became worse off in the past decade. This recession is a time to rethink and reinvent ourselves.....we shouldn't rush back to do more of the same.