10.

But overall, the prospects for this year are bright. We can expect the pockets of weaknesses in the economy to improve as growth momentum picks up. We can be confident because the external environment looks favourable.

11.

First, the strength of the global electronics demand remains firm. According to industry forecasts, world-wide semiconductors and PC sales are expected to grow by 20 per cent and 15 per cent respectively over the next 2 years.

12.

Second, the recovery of the Asian economies is likely to be sustainable. Regional monetary and fiscal policies are expected to remain accommodative, which will fuel growth ahead. So far, recovery has been concentrated mainly on exports and consumption, which will continue to strengthen on the back of healthy external demand and better job prospects. In addition, investment demand has also shown glimpses of improvement after having remained negative for most regional economies last year. Already, capacity utilisation, capital imports and foreign direct investment applications have picked up across Asia, although the pace differs across economies.

13.

Given a benign external environment, our Composite Leading Index (CLI), which leads economic growth by about 9 months, has been rising over the last 6 quarters. Trade prospects remain very positive as non-oil retained imports, a leading indicator for future exports, continues its double-digit growth. Consumer sentiments have also turned visibly upbeat. Retail sales growth is up, as consumers increase their spending in anticipation of better pay increases and a partial restoration in employers' CPF contribution rate this year.

14.

However, this favourable outlook for 2000 is conditional on a soft landing in the United States and a sustained recovery in Japan and Europe. In particular, the risk of a sharp correction in Wall Street triggering a reverse wealth effect and causing a marked slowdown of the US economy, cannot be discounted. Macroeconomic imbalances in the US economy, such as the widening current account deficit, the falling personal savings rate, and the rising corporate leverage, are not sustainable at current rates and will need to be corrected at some point.

15.

In Japan, while recovery is slowly taking shape, its economy is not yet out of the woods. Recovery continues to be underpinned by fiscal stimulus as consumption and private investments are likely to remain fragile due to the ongoing corporate restructuring process. The pace of recovery is further complicated by the prospect of a rising Yen.

16.

Within the region, the main concern is whether the crisis-hit countries can sustain investor confidence by making progress in financial and corporate restructuring. In addition, the political stability of Indonesia remains a key uncertainty. Flash points have again erupted in various parts of Indonesia: communal clashes in Maluku, Lombok, Ambon, and even Bintan, and secessionist movements in Aceh and Irian Jaya.

17.

Nevertheless, there are more reasons to be optimistic, than to be pessimistic about our growth prospects for 2000. The Ministry of Trade and Industry (MTI) is maintaining its forecast of 4.5 to 6.5 per cent for this year. The lower end of the range reflects the potential risks in the external environment. But the upside for the economy appears bright.