The era of low prices is over with global economic conditions ‘fundamentally changed’: PM Lee

THE era of highly competitive prices and enthusiasm for globalisation is over, with international economic conditions having “fundamentally changed”, said Prime Minister Lee Hsien Loong, adding that maintaining supply chain resilience also means higher costs.

“It is not just the pandemic or the war in Ukraine,” he told Singaporeans at his annual National Day Rally on Sunday (Aug 21).

The recent decades were an exceptional period, with globalisation in full swing and international trade growing rapidly, he said. China’s economy was growing exponentially and exporting more and more goods at highly competitive prices, bringing down the cost of many products and enabling price stability.

But this era is now over, said PM Lee. China’s growth and exports are slowing, and their costs rising. Some countries have raised tariffs against each other, while others are relooking their supply chains to prioritise resilience and self-sufficiency.

These trends are raising costs and pushing up inflation everywhere, including in Singapore, he said.

While Singapore has little influence over global inflation, what is within its power is to become more productive and competitive through economic transformation, so that workers can earn more and become better off in real terms, said PM Lee.

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Inflation was already becoming a problem before the war in Ukraine, but the war has made things worse, he noted. The government is doing everything necessary to support Singaporeans, especially middle- and lower-income families, including cash payouts and U-Save rebates. “If the situation worsens, we stand ready to do more,” he assured Singaporeans.

He noted that the Monetary Authority of Singapore has also tightened its exchange rate policy to strengthen the Singapore dollar, which has made travelling overseas more affordable and imported goods cheaper.

But there is a limit to this, he said. A stronger Singdollar makes Singapore’s exports more expensive, causing them to be less competitive against other countries. “So we have to be very careful not to overdo things.”

Besides rising prices, physical supplies are also being disrupted, said PM Lee. Citing Malaysia’s export ban on chickens, Indonesia’s on palm oil and India’s on wheat, he added that Singapore “must expect more arbitrary actions like these”, which will have an impact.

But while Singapore is heavily dependent on imports as a small and open economy, it is not helpless and has been actively diversifying its sources for quite a while, said the prime minister.

It has been building up adequate stockpiles of food and medical essentials and investing in agritech to make local farms more efficient and productive. When Covid-19 came, Singapore redoubled its efforts, said PM Lee.

However, making Singapore’s supplies more resilient costs money, he added: “Buying from diversified sources means that we don’t just buy from the cheapest, or the most convenient producer. Maintaining stockpiles requires space, and incurs costs... But we must think of it as paying for insurance.”

He recounted how the authorities were able to restock supermarkets and restore confidence early in the pandemic, when there was panic buying, as well as how Singapore sourced for chickens from other sources when Malaysia implemented its export ban.

“People take this for granted but actually a lot of work goes on behind the scenes. Nothing happens by itself, not even in Singapore,” said PM Lee. “It is only possible because we always plan forward, to give ourselves options and solutions during crises.”

Click here for the full list of stories from the National Day Rally 2022.