Singapore GDP likely to grow but recession, stagflation not ruled out: Lawrence Wong

Singapore

SINGAPORE'S baseline assumption is that its economy is still able to grow this year, but 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... our baseline assumption and projection is still that we are able to continue growing as an economy this year," he said during a luncheon plenary at the Singapore Apex Business Summit 2022.

However, an escalation to the Russia-led war in Ukraine would affect supply chains, inflation and global growth. If the global economy stagnates amid high inflation resulting in stagflation, Singapore would be affected too, even if its direct links with Russia and Ukraine are limited, he said.

Singapore President Halimah Yacob echoed those views in a speech to guests at Singapore Business Federation's (SBF) 20th anniversary event in the evening, saying that Singapore's earlier projection of a 3-5 per cent economic growth may be affected, and that the Republic must be prepared for "secondary and tertiary effects".

During the luncheon plenary moderated by SBF chief executive Lam Yi Young, Wong was asked if the government could postpone certain Budget 2022 policies, such as the carbon tax hike and foreign workforce tightening, given the higher cost environment.

Wong said the government is aware of the challenges firms are facing, which is why the changes are implemented in phases.

But he pointed out that Singapore's constraints in labour and carbon are not temporary; the labour market will always be tight so long as the economy is growing, while carbon will always be a constraint amid 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?"

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

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

Connectivity is existential for Singapore, he said, and more than physical and digital infrastructure, the Republic must retain the mindset to stay open to entrepreneurs, talent and investments from around the world.

Talent and ideas, he said, will drive Singapore's imperative, which is to become more innovative, and 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, due in part to official funding and support for research and development (R&D), but Wong said the government is ultimately not a venture capital entity.

"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," he said.

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

While these cannot be avoided, he said Singapore must learn to be more resilient by ensuring its finances are sound and stable, investing in its people and strengthening its social compact. Still, he added that Singapore has many things going for it, noting that it is "moving 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," he noted.

This is seen in the strong pipeline of new investments into Singapore, with more businesses wanting to come here, he said. Last year, the Republic secured S$11.8 billion in fixed asset investments.