Outlook For 1999

Notwithstanding the bleak picture in 1998, some positive signs have emerged over the last three months that the crisis is stabilising.The quick succession of US federal rate cuts and the co-ordinated interest rate reduction initiated by European central banks toward the close of last year helped to allay concerns of a global credit crunch and set the stage for a rapid, albeit fragile, recovery of financial markets in early 1999.

Financial indicators have also stabilised in the region. Interest rates have dropped sharply, improving liquidity and reducing debt-servicing expenses. Confidence has been further boosted, particularly in Korea and Thailand, by credible progress on policy reforms, sizeable trade surpluses and strengthening foreign reserves.

In Singapore, some economic indicators are starting to improve. The Composite Leading Index (CLI),which leads economic activity by about nine months, increased marginally in the third quarter of 1998 and picked up momentum in the fourth quarter, after three consecutive quarters of decline. Increased new orders, lower manufacturing unit labour costs and improvements in business expectations helped fuel the turnaround in the CLI.

There are also nascent signs of a recovery in the global electronics industry. Demand for disk drives and semiconductors is on the upturn, following the corrections in inventory overhang and healthy new orders from the US. The global semiconductor industry is forecast to grow by 15 per cent in 1999, after contracting by 6 per cent last year. Global shipments of disk drives are expected to rise by 18 per cent,with revenues growing by 7 per cent.

Despite these positive signs, 1999 may well turn out to be another difficult and challenging year for Singapore. We are in a period of sharp discontinuities. Many uncertainties in the external environment can still unravel, including significant economic, social and political risks. Their outcome will substantially affect our prospects this year.