Singapore economy likely to grow in 2022 but don't rule out recession, stagflation: Lawrence Wong

SINGAPORE'S baseline assumption is that its economy is still able to grow this year, but adverse situations such as a recession or stagflation cannot be ruled out, owing to uncertainties arising from the deepening crisis in Ukraine, said Finance Minister Lawrence Wong on Tuesday (Mar 22).

"It may well be that we can still continue to grow, which is still our assumption today, that our baseline assumption and projection is still that we are able to continue growing as an economy this year," he told more than 3,000 business leaders and government officials during a luncheon plenary at the Singapore Apex Business Summit 2022.

The economy is expected to grow 3 to 5 per cent in 2022, according to official forecasts.

Things could stabilise if the Russia-led invasion into Ukraine de-escalates, he said.

"But there is also the likelihood that things may escalate or that this could be a prolonged war, in which case, there will certainly be an impact on supply chains, on inflation and on global growth, all of which will then impact Singapore," he said.

If the global economy stagnates amid high inflation, resulting in what is known as stagflation, Singapore would be affected too, even if its direct links with Russia and Ukraine are limited, he said.

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During the session moderated by Singapore Business Federation chief executive Lam Yi Young, Wong was asked if the government could delay the implementation of certain Budget 2022 policies, such as the carbon tax and foreign workforce tightening, given the higher cost environment.

Wong said the government is cognisant of the challenges that companies are facing, which is why the changes are implemented in phases.

However, he pointed out that the constraints faced by Singapore on labour and carbon are not temporary ones.

"So long as Singapore is successful as an economy, we will always have a tight labour market. Always," he said.

Likewise, carbon will always be a constraint if Singapore wants to do something about the climate crisis.

"So if we understand that labour and carbon will be permanent constraints in our economy, wouldn't it be better for us to move early to adjust, restructure and transform our business processes to rely less on labour and to be less energy-intensive?" he said.

Moving early will position businesses in a more resilient and stronger position for the future, which will face these constraints.

Beyond near-term uncertainties and confronted with an uncertain future, Singapore must continue to look ahead and redouble its efforts to transform its economy into a more connected, innovative and resilient one, said Wong.

Connectivity remains essential, even existential for Singapore, he said, and long-term plans to enhance Singapore's physical and digital infrastructure, whether it is the Tuas Mega Port or 6G technology, will continue to distinguish Singapore as a "choice hub" for business, finance, trade and data flows.

But he added: "We can have the best types of infrastructure and digital connections but they will not be sufficient if we are not connected in our hearts and minds."

Singapore must retain the ethos and mindset to stay open to entrepreneurs, talent and investments from around the world, he said.

Talent and ideas, he said, will drive Singapore's imperative which is to become more innovative - this is the key to creating wealth and raising standards of living for Singaporeans.

Compared with a decade ago, Singapore has a more vibrant startup ecosystem today, with strong growth in venture investments, he said.

Last year, 11 Singapore-based startups achieved unicorn status, while local filings for patents and trademarks have more than doubled over the last decade, he noted.

This stems partly from the government policy of steadily and consistently investing in science and research and development (R&D), said Wong, but he added that the government is not a venture capital entity and is not in a position to do that.

"What we can do is to fund basic research and fundamental R&D, and that can help catalyse, hopefully, and crowd in more private investments in R&D."

Noting that Singapore has faced many ups and downs over the last 2 years, Wong said there will be more shocks to the economy and society in future.

While these cannot be avoided, he said Singapore must learn to be more resilient by ensuring its finances are sound and stable, by investing in its people and by strengthening its social compact, through initiatives that tackle inequality, for example.

"But I would say, let us never, never lose heart and never give up," he said, adding that Singapore has many things going for it.

"The reality is that Singapore is moving forward from a position of strength. Our responses to the pandemic have distinguished us from other countries, we have enhanced and strengthened our reputation over the past 2 years as a trusted and reliable node."

The best demonstration of this, he said, is the strong and healthy pipeline of new investments into Singapore, with more businesses wanting to come here.

READ MORE: Singapore's productivity grew 3.9% per annum from 2019 to 2021 despite Covid-19: DPM Heng