MEASURES FALL SHORT

Economy is not an exact science, nor simple equation of supply and demand. Policy makers have the tools and levers to manipulate and influence the outcome based on country economic fundamentals. I like to reiterate that this is an unprecedented crisis, the measures taken by policy makers may fall short. I think the major concern is how to and understand and address the change in the consumer psychology if this crisis prolongs into years.

This economic crisis will cause a tectonic shift in every country especially the US. As US consumers feel the pains of unemployment and realised the severity of the downturn, acknowledge their wasteful spending, understand the debt burden future generations have to bear, they may be just a paradigm shift in consumer psychology.They spending behavior may be permanently altered.

China has been the factory of the world for the last decade. Too much industrial capacity has come on stream too fast and any sudden drop of demand will be matched by even faster shutdown. As the consumer psychology changes in the rest of the world, China will soon learned that many of the factories shutdowns will be permanent and thus employment will be structural rather than cyclical.

Likewise, for countries like Japan, Korea and Taiwan too will have to downsize the production in automobiles, consumers’ electronics and IT related industries. The world has over consumed for the past decade. Many of the products of these countries are mainly luxury items, not basic needs. In fact many households have redundant household and electronics inventories and may not need to buy for the next few years. Under this circumstance, producers must anticipate reduced demand and adjust downward the outputs accordingly. As all these countries GDP are highly dependent on industrial productions. Thus we can expect GDP to contract in the next few years. This means higher unemployment, leading to lower purchasing power and hence drop in the standard of living.

How is Singapore affected by this crisis? My prognosis is frightful. Our GDP is highly dependable on commerce and services. With reduced industrial output and falling trades, our port, shipping lines, maritime support and related services will be adversely affected. We also highly plugged into the computer industries. Singapore produces wafer, chips and hard disks. Many of our SMEs provide industrial and service supports for these industries. In the months ahead, we will see most retrenchment in these sectors.

I have always thought our GDP this year will be negative in double digits. At least one minister has mentions -10%. And I think the world GDP has reached the peak in 2008 and will not see this peak for many years to come. It will be a long period of readjustment for every human being on this earth. There will also be a time of wealth realignment. Many rich individual will go bankrupt, some poor becomes poorer. Likewise, a country will see its wealth ranking changes. Countries also have to reprioritise their budgets, perhaps reducing spending on the military and space exploration. Many countries will have to borrow heavily to fund all the expensive stimulus measures. When they can’t get anymore fund, it just have to print money.

The years ahead will be tumultuous.





-----------------------------Living to see the world----------------------NRT