Mr Speaker, Sir

The Singapore economy grew by a robust 7.8 per cent in 1997. However, this did not reflect the seriousness of the ongoing regional economic turmoil which started in July last year.

Economic growth in 1997 was largely shaped by two factors. First, we benefited from the recovery in the global electronics industry. Corrections in inventory overhang and healthy new orders in US and Europe boosted export demand, and confirmed our earlier assessment that the slowdown we experienced in the second half of 1996 was primarily cyclical. This turnaround provided the fillip for the manufacturing sector. We expected this.

But nobody expected the second factor - the spread and subsequent deepening of the economic crisis in the region. The speed and severity of contagion caught everyone off-guard. What started off as a devaluation of the Thai Baht led to widespread financial and economic turbulence in the region. One after another, regional currencies and stock markets plummeted as international confidence in the region as a whole fell and global capital flowed out of East Asia. Singapore, despite our strong fundamentals, was not spared.

Fortunately, the impact on the real economy in 1997 was muted. There were two primary reasons for this. First, a large part of Singapore's regional trade consists of intra-firm movement of parts, components and final products by multi-national companies (MNCs) for export to end markets in the OECD countries. As final demand from the US and EU was healthy, Singapore's overall trade was not too seriously affected by the regional crisis. Second, the upswing in global electronics demand also supported our manufacturing growth, generating favourable spin-offs for our related hub services.