Global

1.10 The external environment has picked up in the last few months. The US economy grew by a robust 5.8% in the first quarter of this year after growing 1.7% in the last quarter of 2001. Business confidence seems to be improving in the US, European Union (EU) and Japan. The global electronics industry is also bottoming out.

1.11 Singapore's economy has improved in tandem with these developments. After three successive negative quarters, quarter-on-quarter growth in the fourth quarter of 2001 was 5.6%. The initial estimate of q-on-q growth for the first quarter of 2002 was 3.5%. This has now been substantially revised upwards to 7.7%. As a result, MTI is more optimistic that the economy will grow faster for 2002 as a whole. The original projection for 2002 was between 1% and 3% growth. This has now been revised up, to growth of between 2% and 4%.

1.12 But we are not yet out of the woods. The strong growth of the US economy in the first quarter masks signs of weaknesses. For example, US March orders for durable goods fell 0.6% after 3 months of growth, and profit warnings caused US stocks to fall despite the strong growth.

1.13 Moreover, the global economy is vulnerable to political and security risks. Recovery does not just depend on the confidence of US consumers, or how strongly the US economy picks up. The whole world is anxiously watching the ferocious war of terror and reprisal between Israel and the Palestinians. If this escalates out of control into a wider Middle East conflict, the consequences will be unpredictable. So too if the US moves against Iraq in its continuing war against global terrorism. The disruption of oil supplies and prices is only one of the possible side-effects. Already Iraq has stopped its oil production and called on other Arab producers to cut their production by half.

1.14 A sharp rise in oil prices would adversely affect our markets in the developed economies, as well as Singapore directly. Even if oil prices do not spike, the prospect of war and instability will put off investors worldwide, undermine confidence, and set our economy back again.

Regional

1.15 The prospects for Southeast Asia are clouded. Economic conditions in these countries are reasonably stable, with some opportunities for profitable investments. But the region has yet to regain the full confidence and attention of investors, who are concerned about political and security risks. Extremist and terrorist groups in the region, which are linked to global terrorist networks, seek to destabilise regional governments and attack Americans and US interests everywhere. This will further erode confidence and hamper recovery.

1.16 These factors make Southeast Asia less attractive than Northeast Asia. China is the biggest and most important new player in the global economy. South Korea is restructuring its economy, and recovering faster than the crisis-hit Southeast Asian economies. Singapore is still attracting good quality investments and business activities, but companies are feeling the pull of Northeast Asia, and some are relocating their activities northwards, particularly to China and Hong Kong.

1.17 This global and regional backdrop makes it more urgent for us to make strategic changes now. We face an uphill task to bring to Singapore the economic activities that will provide Singaporeans with jobs. We must also attract top talent with their business ideas and activities to Singapore. In a world where knowledge and skills are key sources of wealth, this is just as important as bringing in high value-added investments. Our challenge is to make Singapore best for business and talent.