<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Feb 9, 2009
</TR><!-- headline one : start --><TR>Deleveraging to continue <!--10 min-->
</TR><!-- headline one : end --><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Fiona Chan
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To help Singapore companies deal with the downturn, the Government has implemented a number of strategies to facilitiate credit, alleviate costs, boost demand and build capabilities. -- PHOTO: ST
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<!-- START OF : div id="storytext"-->FOUR themes are likely to dominate the world economy this year, even as it enters a downturn filled with uncertainties, Minister of Trade and Industry (MTI) Lim Hng Kiang said on Monday.
One, the deleveraging process that has seized the financial industry is likely to continue, he said in Parliament.
Banks and financial institutions are still desperately trying to offload their assets to repair their balance sheets, causing credit to tighten further.
Two, the synchronised global recession will have a negative feedback loop on the financial sector.
Fear begets panic begets more fear, which is manifested in banks refusing to lend and companies folding due to the lack of credit, prompting banks to turn even more risk-averse.
The negative feedback loop is also played out in the broader economy. Consumers spend less, forcing businesses to cut back and lay off workers, which leads to even less spending, and so on.
Three, many sectors will start to see overcapacity as global demand collapses, Mr Lim said. This will lead to a phase of 'consolidation and a shake out'.
The signs are 'very obvious in the auto and steel industry', he added. 'Other sectors will face different degrees of overcapacity.'
Lastly, the global imbalances have to be corrected in the worldwide recession, and countries will 'settle down to a new, more sustainable balance'.
To help Singapore companies deal with the downturn, the Government has implemented a number of strategies to facilitiate credit, alleviate costs, boost demand and build capabilities, Mr Lim said.
While it is unwise for MTI agencies to replace banks in evaluating loan applications for companies, the agencies will 'work closely with the companies and participating financial institutions to make sure that credit flows to viable businesses'.
He also defended Singapore's export-oriented growth strategy, saying that Singapore remains on the right track in pursuing strong economic growth.
Over the last five years, Singapore has grown 'faster than most economies in this region and certainly faster than any other economy with a comparable level of per capita income, while enjoying lower inflation', Mr Lim added.
'The reason why our economy has contracted more sharply than others has to do with our small size, our openness and our dependence on global markets,' he said. 'Other countries that grew at a more moderate pace in the past have also entered into recession. Some, such as Taiwan and Ireland, are expected to contract just as sharply as Singapore this year.
</TR><!-- headline one : start --><TR>Deleveraging to continue <!--10 min-->
</TR><!-- headline one : end --><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Fiona Chan
</TD></TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
To help Singapore companies deal with the downturn, the Government has implemented a number of strategies to facilitiate credit, alleviate costs, boost demand and build capabilities. -- PHOTO: ST
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"-->FOUR themes are likely to dominate the world economy this year, even as it enters a downturn filled with uncertainties, Minister of Trade and Industry (MTI) Lim Hng Kiang said on Monday.
One, the deleveraging process that has seized the financial industry is likely to continue, he said in Parliament.
Banks and financial institutions are still desperately trying to offload their assets to repair their balance sheets, causing credit to tighten further.
Two, the synchronised global recession will have a negative feedback loop on the financial sector.
Fear begets panic begets more fear, which is manifested in banks refusing to lend and companies folding due to the lack of credit, prompting banks to turn even more risk-averse.
The negative feedback loop is also played out in the broader economy. Consumers spend less, forcing businesses to cut back and lay off workers, which leads to even less spending, and so on.
Three, many sectors will start to see overcapacity as global demand collapses, Mr Lim said. This will lead to a phase of 'consolidation and a shake out'.
The signs are 'very obvious in the auto and steel industry', he added. 'Other sectors will face different degrees of overcapacity.'
Lastly, the global imbalances have to be corrected in the worldwide recession, and countries will 'settle down to a new, more sustainable balance'.
To help Singapore companies deal with the downturn, the Government has implemented a number of strategies to facilitiate credit, alleviate costs, boost demand and build capabilities, Mr Lim said.
While it is unwise for MTI agencies to replace banks in evaluating loan applications for companies, the agencies will 'work closely with the companies and participating financial institutions to make sure that credit flows to viable businesses'.
He also defended Singapore's export-oriented growth strategy, saying that Singapore remains on the right track in pursuing strong economic growth.
Over the last five years, Singapore has grown 'faster than most economies in this region and certainly faster than any other economy with a comparable level of per capita income, while enjoying lower inflation', Mr Lim added.
'The reason why our economy has contracted more sharply than others has to do with our small size, our openness and our dependence on global markets,' he said. 'Other countries that grew at a more moderate pace in the past have also entered into recession. Some, such as Taiwan and Ireland, are expected to contract just as sharply as Singapore this year.
