Complete Property Market Updates of Singapore

Emerging economies show global resilience but have set the stage for a boom in prices

THE global economy is being buffeted by powerful crosswinds. Disruptive financial market turmoil is slowing growth in advanced economies. But emerging market economies have provided a measure of global resilience, although this has also set the stage for a boom in food and fuel prices.

The divergence in performance between advanced and emerging economies points to an ongoing shift toward a multi-polar world, with a reduced reliance on the United States as the locomotive of the global economy. Emerging economies will not decouple from the advanced economies, but neither will they be derailed, as witnessed all too often in the past.

These developments reflect three salient trends are transforming the dynamics of the global business cycle. First, strong internal growth momentum in emerging and developing economies is providing a valuable global trade shock-absorber. The US downturn would be a lot steeper but for the support being given to its export sector by growth in many economies around the globe.

Can emerging economies, notably China and India, sustain this internal momentum? Inevitably, in an increasingly globalised economy, growth spillovers from advanced to emerging and developing economies remain sizeable. Indeed, both trade and financial linkages are rising as emerging economies have become more integrated into global markets.

Thus, emerging and developing economies are unlikely to be immune from the economic consequences of the financial turmoil in advanced economies. Nevertheless, improved macroeconomic policy frameworks and strong productivity growth should provide greater resilience than in the past. Sudden stops of capital flows to emerging markets are still possible when policymakers lose their footing, but seem less likely as balance sheet vulnerabilities have been lowered in many countries.

Moreover, careful policymaking has earned some room for manoeuvre, and many countries would be able to use countercyclical policies if growth does falter.

Second, the commodity price shock absorber is no longer working as it did in the past. Moderating demand in advanced economies has not led to the usual softening of commodity prices, in large part because the dynamism of emerging economies has sustained strong demand growth.

Instead, against the backdrop of a falling dollar and rising financial market volatility, oil prices have risen to record highs and food prices have soared. Rising commodity prices have dampened consumption in advanced economies, and even more importantly have sparked inflation pressures globally, just as activity is slowing.

Third, financial shock absorbers are working through new channels as emerging and developing economies as a group have shifted to being a net source of savings for the global economy. For many years, the accumulation of large international reserves by Asian emerging economies and oil exporters in the Middle East helped to finance the large US current account deficit.

Recently, the infusion of financial resources from sovereign wealth funds to recapitalise US and European banks has helped to contain the impact of the financial crisis. It remains to be seen how the dislocations in financial markets will affect the flow of funds into other markets, including emerging economies.

Deepening downturn

These changes in the global business cycle are a positive development, but they do pose challenges for policymaking in both advanced and emerging economies. An effective response to a deepening downturn in global activity would need to involve the large emerging economies as well as the advanced economies, recognising both their increasing weight in global aggregate demand and the policy space they have earned through disciplined policy implementation.

Inflation is also a common challenge for advanced and emerging economies. For advanced economies, particularly in the euro area, rising inflation has constrained the room for monetary easing to respond to a weaker growth outlook. And among emerging markets, central banks have tightened across a broad range of countries, including Brazil, China, India and Russia to name just a few, and continued tightening of monetary policy will be needed.

In addition, fiscal restraint, flexible exchange rate management, and targeted support for lower income groups to ensure access to the food they need must be part of the policy mix.

Similarly, unlike in the 1980s, the global current account imbalances are no longer an issue for the large advanced economies alone - a development recognised by the Multilateral Consultation on Global Imbalances organised by the IMF last year, which involved China and Saudi Arabia in addition to the ‘G-3′ economies (US, euro area, Japan).

What is needed is a further rebalancing of domestic demand across countries, with supporting movements in real exchange rates, notably of emerging economy currencies operating under inflexible exchange rate regimes. This would be desirable both from the individual countries’ perspective as a means of reducing inflation pressures and sustaining growth, as well as for easing global imbalances.

In conclusion, the dynamics of the global economy are changing as it becomes increasingly multi-polar. Emerging economies will need to play a growing leadership role, joining with advanced economies in learning to operate in this still unfamiliar terrain.

By Charles Collyns, a deputy director; and Krishna Srinivasan, an adviser in the Research Department of the International Monetary Fund

Source : Business Times - 9 May 2008

MUCH has been written about the nature of the beast, about whether it’s shaped like a U, V, L or even W. We’re talking of course about the impending - or, as oracles like former US Federal Reserve chief Alan Greenspan and Berkshire Hathaway’s Warren Buffett contend, the ongoing - US recession. What’s clear is that the world’s largest economy, hammered by a massive financial crisis that has reverberated across the globe and further weakened by ever-rising oil prices, is on the ropes. And the impact of a US economy brought to its knees by a recession, whatever the shape, is bound to shake national economies everywhere.

Singapore awaits with concern, but also a measure of quiet assurance. It’s a beast we’ve faced before, this spectre of global slowdown, and the painful lessons have been well learnt. The first hard lesson is that a small and open economy like Singapore’s can never be fully shielded or buffered from external tremors. The corollary, though, is that the right preparation can make all the difference between holding firm in the storm and being blown away.

Thus Prime Minister Lee Hsien Loong’s assurance in his May Day message that ‘however the US financial problems play out, I am confident of our ability to cope’. Earlier this week, in a dialogue with over 100 business and financial leaders, PM Lee expanded on that premise. If things do get significantly worse - and at this point that’s a big ‘if’ - the government has several possible options, he noted. Fiscal policy measures would be one such option. There could be directed assistance to help lower-income workers. Or the government could resuscitate construction projects that had been put on hold. ‘We have the resources, we have the wherewithal,’ Mr Lee noted.

Significantly, the savvy audience would have noted that the options he mentioned were not being pulled out of a vacuum. The global situation is being closely tracked by the country’s planners, and Singapore’s own economic performance is comprehensively monitored. Scenarios have been drawn up to cover the spectrum of possibilities. Any urgent or emergency measures would thus be as apt for the situation as is humanly possible.

However, true economic resilience is not just holding firm in the short term, but growing in strength through adversity over the long term. That is why the longer-term initiatives to keep this island-nation globally competitive and relevant must continue apace.

The hardware is being upgraded on schedule, from airports to highways and the MRT system, to a national ultra high-speed infocomm infrastructure that will spark a whole new panoply of high-tech products and services. As important will be developing the ’software’, a new generation of world-class, world-conscious Singaporeans. Get the formula right and the world will beat a path to Singapore’s door, recession or no recession.

Source : Business Times - 9 May 2008