Malaysian last quarter growth in 2008 was 0.1%. I expect the 1st quarter to be in the negative territory. The second quarter will probably be worse. That would mean that we are going into recession, since by definition, a country is deemed to be in recession with 2 consecutive negative growth.
Negative growth can be compounded just like positive growth. The effects will be cumulative. And it is more difficult to go up than go down.
If the economy is worth RM1000, for example, and suffers a contraction of 50% in a quarter, it will become RM 500 only. If the next quarter , it suffers another contraction of 50%, the economy would only be worth RM 250.
For this RM250 to go back to RM500, you need to have 100% growth. For RM500 to go back to RM1000, it needs another 100% growth. In other words, it needs 2 consecutive growth rate of 100% to gain back what was lost during the 2 consecutive contraction of 50%.
So much is the truth behind the figures. The classic example is Japan which has taken more than a decade to climb out of deflation.
China’s (and to a smaller extent India) is the only one showing a more than 6% growth at the moment, but its economy is only one quarter of that of the US, which is in deep recession now. As an export orientated country, it is inevitable that our economy will slide backward.
Much will depend on the US and how OBAMAtackled the economy. Much will depend on how fast the housing sector finds its bottom in the States.
I am afraid that because so much expectations were on OBama, just like Malaysians had in 2004 on Pak Lah, it would be a disaster if Obama cannot deliver in a year or so. Lee Kuan Yew said in a New Year speech on 6 February that in 9 months, the world would know how Obama’s economic plan is doing.
This speech of Lee Kuan yew reminded me of Winston Churchill, one of the greatest British statesmen . When all seemed lost in the 2nd World War after the fall of France, it was Winston Churchill who, by several of his motivating speeches, lifted the spirits of the British, and they fought courageously to win the Air Battle of Britain, and stalled Hilter’s invasion of Great Britain. His speech of “ we shall fight on the beaches” galvanised a whole nation to fight.
Exceptional times need exceptional leaders. Winston Churchill was one. Lee Kuan Yew has proven to be one. Singapore is indeed lucky that he is still around to galvanise the nation. Obama may yet to prove to be one (for the sake of the world’s poor, I hope he can be one).
Looking around us, do we have any of these leaders with calibers to turn the direction of a nation?
I will post part of Lee’s speech here and see how the government of Singapore has prepared the people for the recession:
Everyone in the world is poorer. US$7 trillion has been wiped off the world’s stock markets. According to a BBC report from Davos, the world’s assets (stocks, properties, pensions, gold, jewellery, etc) have lost 40% of their value. Rupert Murdoch speaking at Davos said personal wealth in the world has fallen by US$50 trillion. Forbes estimated that in Hong Kong , the 40 richest billionaires and millionaires have lost half their combined wealth
Property values have gone down in every country, so have profits for companies and wages for workers. In Singapore , our SGX market capitalisation lost half of its value last year. Properties at the high end, residential and commercial have gone down. However, HDB prices have held up because many are downgrading from private condominiums to purchase HDB flats. Everyone’s wealth has shrunk as our assets have lost value. But if you have not borrowed excessively to buy assets and have sufficient cash to service your loans, you can hold on to your investments until the market turns up and prices recover.
Singaporeans need not despair or be depressed. We will have to endure some hardship. But nobody will be destitute, depending on soup kitchens or begging in the streets. Everyone has a home, 95% of Singaporeans are home-owners. They will receive U-save rebates and S&C subsidies, GST credits, Workfare Income Supplements and other forms of assistance.
Most importantly, the government has launched the Jobs Credit Scheme to save jobs for Singaporeans by giving employers a maximum grant of $300 per month for each Singaporean worker. These measures will help Singaporeans meet their basic living expenses and defray their utility bills and conservancy charges. Support is tilted towards the lower income families in the two and three-room flats, and also the middle-income in four and five-room flats.
Some professionals have written to the newspapers that we are ignoring those in the private condominiums and landed properties. The government has not overlooked them. They are getting income tax and property rebates, and GST credits. But it is right that the low income groups should get more help, as they are in greater need.
Ministers and senior civil servants are taking pay cuts of up to 20% as the economy has slowed down substantially. Middle and lower-ranking public officers would also receive lower salaries, but with smaller reductions. It is to share the belt tightening that other Singaporeans have to bear in this difficult period.
Most of what we consume is imported. We do not grow our food, nor manufacture the goods we buy. Whatever we do, retailers will find customers more cautious, because they are preparing for what could be a longish period of negative or little growth. Retailers, like other companies, will get up to $300 per month for each Singaporean employee through the Jobs Credit Scheme, and should also benefit from the 40% property tax rebate, which is the least that landlords should pass on to tenants.
Along Orchard Road and many other shopping centres, tents have been put up next to shopping malls for the mall tenants and others to sell their wares to passers-by at lower prices. The market will adjust. This experience will be remembered by everyone, especially by all those who were born after 1971. After 1971 and the oil crisis which caused oil prices to quadruple, our economy has grown steadily year after year. So this generation may believe that Singapore and Singaporeans will automatically go up the escalator every year. This is not so.
In testing times, we must have the guts to face our problems, maintain solidarity and work together, learn new skills and knowledge through the SPUR programme that the government has launched. We will overcome our present difficulties and emerge stronger from the experience. We will get fresh investments again, higher value investments that will employ more workers who are better-skilled and more knowledgeable. Our standing with investors worldwide is high. They know we are restructuring and that we will pay for our workers to be trained by them, and by other institutes, under the SPUR programme to match the skilled workers that they need. We should take this opportunity to go for training and upgrade ourselves for these higher value-added jobs.
Singapore’s security, stability, reliability and good labour relations are well known. Whatever your job, you are better off in Singapore than if you are in a similar job in any other Asian country, including China and India . The only country where job for job, you can be better off, is in Japan . The Japanese have huge reserves, top class infrastructure and a highly skilled, industrious and knowledgeable workforce.
Do not be discouraged by the present hard times. I am confident the younger generation of Singaporeans have the grit, stamina and resourcefulness to bounce back.
My generation of Singaporeans will never forget the 1960s and early ‘70s when we had only $100 million in our reserves. We faced separation from our then economic hinterland, Malaysia, and “Konfrontasi” and no trade with Indonesia .
That generation kept their nerve and were determined to succeed. Your parents’ and grandparents’ generations had hard lives in shanty huts with no running water or modern w.c, not knowing what the future could bring. They simply concentrated on hard work and built the foundation for the Singapore of the 21st century.
We will go through with restructuring our economy. And retrain and educate our workers to higher levels of skills and knowledge. When recovery comes in the US and EU as it must, we will be ready for a higher level of economic activity.
Your generation can take Singapore forward to become one of Asia ’s most vibrant and beautiful cities. We will have a spectacular marina in the Central Business District; the island will have many beautiful streams and water bodies; our housing estates will be clad in exuberant foliage and ringed by gardens, recreational and sporting facilities. This is not a pie in the sky. It will be realised in the next 5 to 10 years, even with the current financial crisis.
The success of Singapore came from the hard work, resourcefulness and ingenuity of your forefathers and their leaders. You are the descendants of these lion-hearted pioneers. You have it in you to succeed. Joining you are hardworking and talented new emigrants from Asean , India and China . Together we can make the grade.