(A) Uncertainties reign in the larger market

The Ministry of Trade and Industry (MTI) has recently expressed concerns that the economy is facing a threat from three areas, i.e. rising inflation, slower growth and weaker exports.

Rising global oil and food prices will have a significant impact on Singapore’s inflation whilst the economic crisis facing Singapore's major export markets such as US and Europe will affect our exports and growth. At the time of this report, oil price was hovering between US$120 and US$124 per barrel.

Consequently, the Malaysian and Indonesian governments took drastic measures to reduce state subsidies on petrol prices, causing pump prices to shoot in the two countries. In the case of Malaysia, the increase in pump prices is a hefty 40%.

As it is, the inflation risks in Singapore had overtaken slowing growth as the main worry for the government. The MTI had maintained its economic growth forecast for this year at 4% to 6%.

The Malaysian government suddenly announced a 40% increase in pump prices, triggering widespread unhappiness. Earlier, the Indonesian government had also withdrawn the state subsidies on petrol prices, triggering massive student protests. The chain of events is significant to the Singapore real estate market as the citizens of both the regional neighbours make up slightly more than 40% of the total number of foreign buyers of Singapore real estate, especially in the high-end property segment.

The current disquiet may develop into large scale anti-government movements that may even topple a government – very much like the situation in 1998 where President Suharto was sidelined amidst widespread unrest. What follows is usually a period of great uncertainty and violence that will prevent the free flow of investment money into Singapore. At the rate oil prices are rising, the probability of the ‘worst case scenario’ cannot be ignored.

At first, Prime Minister Lee Hsien Loong sounded rather pessimistic about the immediate economic prospect. But three weeks later, the de facto central bank of Singapore the Monetary Authority of Singapore (MAS) issued an optimistic statement saying that the ‘slowdown’ is unlikely to be significant

The central bank insisted that there were robust expansions in both the domestic and offshore banking segments. Commercial bank loans continued to record strong growth, with firm gains across most non-bank customers, particularly building and construction. Also looking rosy is wealth management and domestic loans sector.

However private analysts are more cautious saying that if the credit crisis is not solved soon, even these sectors will be impacted.

PM Lee sees the economic momentum slowing in the next few quarters as the US economy struggled to stay above the troubled water of the sub-prime mortgage problems.

However, PM Lee acknowledged that whatever happens in the US downturn, the impact on the Singapore economy will be uneven. He pointed out that construction, marine engineering, ports and shipyards will be 'all right'; but tourism, financial services and information technology may not be as lucky.

The discrepancies between PM Lee’s and MAS’ statements best summed up the current market uncertainties.

The following gurus have recently given their thoughts on the US situation.

George Soros believes that the 'acute phase' of the financial crisis is 'largely behind us', even as the US economy is only now starting to feel the effect.

The damage done to the global financial system has to affect the real economy but the effect of that is only beginning to be felt as there is a certain time lag.

Separately, renowned investor Jim Rogers warned that the credit crisis 'isn't halfway through' and there may be more write-offs from European and Asian banks.

He added that considering the scale of the credit bubble that burst, it would likely take years to 'clean it up'.

Earlier, Mr Greenspan doubted there would be an immediate recovery, saying stagnation for the rest of the year was the most likely outcome. The economy would not start turning around until home prices started settling and eased pressure on finance companies to write off mortgage-related losses.

Investment guru, Warren Buffett has said that the United States is already in a recession, though the pattern of the decline does not conform to the traditional definition of an economic recession which is two consecutive quarters of negative growth.

He added that this recession will be longer and deeper than what many people expect.

There has been a prevalent belief that the impact of the sub-prime mortgage crisis is still not at its hardest and the worst has yet to come.

The summaries below will shed some light on the full impact of the crisis [for those who are interested in the details, they are in Annex A]:

A joint study conducted recently by the Citigroup and international property consultant Knight Frank ascertained that the soaring prices of natural energy and food have created many multi-billionaires despite the on-going credit crunch. And the good news is: they are buying more properties across different continents.

The report ranks high net-worth individuals in four categories - those with US$1 million to US$10 million; US$10 million to US$100 million; US$100 million to US$1 billion; and more than US$1 billion.

The study found that 15.7% of the entry-level high net-worth individuals own four or more homes. One notch above, 23.3% of those with US$10m to US$100m in wealth own as many homes. As the wealth increases, the individuals own more homes, with 31.5% of the third category and 60% of the wealthiest category owning four or more homes.

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