GIC says risk of shocks may trigger world recession `sooner than expected”
July 25th, 2010 | 
Author: The global rebound is “fragile” and shocks could push the world toward another recession, according to Government of Singapore Investment Corp., manager of more than $100 billion of the nation’s foreign reserves.
Risks to the global recovery have increased due to Europe’s debt turmoil, continued deleveraging in the U.S. and protectionist pressures, Tony Tan, deputy chairman of GIC, said in a speech in Singapore today. The fund is ranked the world’s sixth-largest state investment company by Sovereign Wealth Fund Institute in California.
“The economic recovery, while real, is fragile and there is a risk that negative shocks could push the global economy towards a recession sooner than expected,” Tan said. “The strong rebound in global industrial production is peaking while monetary and fiscal policies, particularly in the larger emerging economies, are being normalized.”
Policy makers in most developed economies have refrained from raising interest rates from record lows amid concern the global recovery will falter. The International Monetary Fund this month said financial-market turmoil has increased the risks to the rebound, and Moody’s Investors Service lowered its credit ratings on Portugal and Ireland.
Bernanke’s Comments
“The challenge for policy makers in many developed economies will be to convince markets that they have credible plans to ensure sustainable public finances over the medium to long term, while minimizing the negative short-term impact on growth,” Tan said. “While markets have focused on Greece, Portugal, Spain, Ireland and Italy, this risk remains high for the U.K., U.S., and Japan.”
U.S. Federal Reserve Chairman Ben S. Bernanke said July 21 the economic outlook remains “unusually uncertain,” adding to concern the global recovery is losing steam. The comments sent crude oil and metal prices lower and triggered declines in stocks in the U.S. and Asia.
Developed economies will take a “long time” to recover fully from the global crisis and emerging nations such as Brazil, Russia, India and China will gain importance, Tan said.
The world economy may grow 4 percent in 2010, before expanding at a more moderate pace next year, he said. Growth in Asia excluding Japan may reach 8 percent this year, with China and India expanding 8 percent to 10 percent, Tan estimated.
Emerging Markets
“For investors, the rise of emerging markets will mean that a larger proportion of their investments will be in these markets,” he said. “Far from being a risky and perhaps optional part of their portfolios, emerging markets will become a core and unavoidable asset class in global portfolios.”
GIC’s investments in stocks accounted for 38 percent of its portfolio in the year to March 31, 2009, while bond investments represented 24 percent, according to its annual report released in September. Allocations to alternative investments, including private equity, real estate and hedge funds, made up 30 percent of its portfolio.
GIC bought stakes in Citigroup Inc. and UBS AG in 2008 as the collapse in the U.S. subprime mortgage market in 2007 froze credit markets and led to almost $1.8 trillion in losses and writedowns at financial institutions worldwide.
The global financial crisis of 2008 and 2009 will likely “accelerate the shift in economic power from the developed to the emerging world,” Tan said. “Asia is at the cusp of the next stage in its development.”
Domestic demand will be a key source of Asia’s economic growth, which has been largely dependent on exports, and “extensive” infrastructure investment will be needed as cities develop, Tan said. Higher wages and investment inflows will over time result in “significantly stronger currencies” in the region, he said.
The need for capital to finance Asia’s growth will also fuel the growth of the region’s foreign-exchange, bond and equity markets as well as its financial institutions, he said. Asia, led by China, will also increase research and development of technologies that address environmental constraints such as renewable technology, he said.
By Shamim Adam in Singapore
http://www.bloomberg.com/
Posted in Headlines
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Its not surprising as most of the economies recover because of artificial massive financial assistance pumped by world governments.
Once the money is used up, the world economy will go under.
Be prepared and save up as much as you can…another tsunami may hit us soon.
And for those of marriageable age who wish to set up families of their own; but have insufficient funds in their CPF a/cs to pay for the downpayment of a HDB flat; maybe it may be wiser to live temporarily with their parents/in-laws.
The inconvenience is inevitable; but with retirement age going beyond 62; much of the time would be spent in the work-place.
Leave the foreigners alone to gamble in the HDB property market. They have a whole kampung of relatives back “home” to assist them with financial assistance(s) for the downpayment of their 2nd hand flats. i.e. a very sound investment in a very stable country.
Q for your “1st timer” flat.
In this way, new citizens will not be able to make profits out of their sales of 2nd hand flats to native citizens.
Remember, HDB flats are built from public funds; to be “live in” and not as a trading commodity.
There is nothing to rejoice/panic when news of rising housing prices are disseminated through the media.
In September 2008, the collapse of US investment bank Lehman Brothers being the fourth-largest investment bank in the United States was due to wrong investment in securities linked to the US sub-prime mortgage market that sparked a worldwide financial crisis and global recession.
Luckily the recession was contained by world financiers and governments clamping down on fraud, increase capital requirements for banks and getting banks to hold enough money to cover their normal operations and honour withdrawals.
Presently, the United States economy is flat with Europe economies shrinking at around 1 percent. This shows that some countries have yet to fully recover from the ongoing global recession.
Further recessions cannot be prevented because it is like when the economy expands with consumers spending beyond their means and then drastically the economy starts to slow down but can still recover with austerity measures imposed by the respective governments.
In the 90s, many graduates who bought houses prior to 1997 Asian financial crisis signed themselves up for life long slavery. Those who paid over S$700,000 for a 5 room flat was not uncommon. Looking at the past 10 years turmoil, these people are yet to recover from that Tsunami in 97. Many’s life are just wasted away or they have waste away their parent’s live long savings.
The same pattern repeated itself again and again in periods of 2009, 2004, and now 2010 record has out done to crazy price surge in 1997.
The prices in 2010 are driven by : 1. Artificial increase of demand and deliberate limiting supply. 2. Foreigners who do not have a clue about the real Singapore economic situation. 3. Foreigners who are here to make quick money thru the lucrative property market. But they are not the big players, they are the small timers who borrowed heavily.
Young people these days, those between the age of 20-35 face a very difficult situation to buy a flat and start a family. Instead, foreigners who secured a job in Singapore, can come into Singapore, get a PR or Citizenship with a subsidy from Government (anything from 20k to 50k. case by case). In such a unfair situation, locals are pushed out of the market and have to wait for a long time as a first time buyer. To be S$500,000 in debt just starting a job (not even a career) is a situation similar to the Chinese major cities.
THIS IS A DANGEROUS TIME BOMB WHICH WILL HIT LOCAL SINGAPOREANS VERY HARD.
Let me explain why. In the past, many foreigners who came to Singapore to invest in property can escape bankruptcy very easily. They simply left Singapore. In 1997, many foreigners who came to Singapore and could not service the loans, they simply left and did not bother to come back. Or might have come back using a different identity. How can we check?
When the loans are defaulted in very large amount, we will face a similar situation as the US sub prime meltdown. Different in technicalities, but very similar cause and effect. That is, financial institutions (in this case the government) driven by greed to create an artificial property boom which has not foundation.
Many foreigners are in Singapore because they are taking up jobs at a lower pay than the locals. The salary is not at all fantastic, and is very volatile. In the month of July, many PRC turned Singapore became jobless at the age of 40-50 (a few MNC major layoff). These people cannot continue to find jobs in Singapore. These people simply sell their property to the next idiot who wants to come in and left Singapore.
Now, the consequences are multiplying in magnitudes for the locals. How can a 4 room flat, for what it is, fetch more than S$450,000? The total family income of the family is less than $8000. Do a simple math and you can easily translate that into life time slavery.
Bear in mind that land is free for the government, and to build a unit cost much less than S$50,000. Property prices are pegged to the highest premium fetched in prime area of Orchid Road. This is not right.
I predict there will be a melt down much worse than the 1997 soon in 2011 or earlier. The jobs in Singapore are not based on long term sustainability. It is due to short time infrastructure investments in Singapore. Together with the weakening of US economy and the propensity of North East Asia conflict, the situation is very dire.
Anyone who has purchased a property from 2009 and still have a heavy loan to service, will see their pathetic end coming very soon.
How on earth a tiny red dot with virtually none natural resources, a labour force with a pathetically low productivity by the world’s standards, a labour force that is largely dependant on cheap foreign workers, no Foxconn, Formosa Plastics, the Samsungs, LGs, no Sonys, no Matsushita equivalents, no Siemens, no Nokias – nothing much worth world class to talk about, and yet can have the World’s 6th largest sovereign fund???
Mine is simple logic thinking – can anyone enlighten, please??
Well we have ERP, CPF, COE from local, PSA, Jurong island from foreign investment…
Just what I think…
Shocking Merlion: July 25, 2010 at 8:14 pm
Singapore is ranked 6th in terms of sovereign fund, because of the value of the assets owned. Assets, purchased with borrowed money. Money from Singaporean’s CPF, and GLC banks, and paid with very low interests. On top of money gained by issuing government bonds (again, with low interest rates), which traditionally are meant to build a country’s military, health, civil, educational and statutory infrastructure but instead have been siphoned off for investments.
Local: July 25, 2010 at 6:30 pm
The Government should undertake a comprehensive study to determine the following:
a. What is the maximum land yield after all reclamation have been completed;
b. With competing demand for its use, what percentages of land should be are allocated for the various activities e.g. living spaces, reservoirs, parks, industrial sites, recreational areas, road and transport system, airports and seaports, commercial areas – offices, malls, eateries, educational areas, tourist attractions, etc. in order to maximise land use;
c. Which economic activities are desirable and which are preferred and why.
d. What recreational activities should be supported?
e. Review of living spaces- high rises vs. low density housing. and
f. Finally, what is the ideal and optimum population for our land size?
City and economic planning for the future can then commence. The planning must involve people from all walks of life.
Land and its uses are dear to us all as ultimately they determine what is over our heads – is it a roof; how do we secure this roof and what price the roof?
Singaporeans are lucky because our founding fathers thought deep and hard and brought about the best public housing scheme in the world. However, that good they conjured is about to come apart at the seams because of wrong policies.
Wrong policies:
1. HDB apartments are becoming unaffordable for most Singaporeans;
2. PRs are allowed to buy HDB apartments;
3. Owners of private properties are allowed to own HDB properties as well;
4. HDB apartments are being rented out;
5. The HDB policy of wanting to merge the HDB into the private housing sector through the BTO scheme;
6. The new feature in the re-sale apartments i.e. COVs are making re-sale apartments unaffordable even for upgraders; and
7. The demand for apartments far outstrips the supply because of the presence of 2 million foreign workers.
The woefully inadequate Government of Prime Minister Lee Hsien Loong charged headlong into attempting to balloon our population to 6.5 million without prior consultation or planning. The present property bubble is result despite MM Lee Kuan Yew denying this.
More banks in the US and EU are eminently failing without more cash injections by the Governments there. When another crisis arrives, the property market in Singapore will take the biggest hit. And the PAP Government will once again say that Singapore is an open economy and buyers’ should be aware of the pitfalls.
Isn’t this comical enough? MITI upgraded Singapore’s 2010 GDP growth forecast to a blistering 13% to 15%, even faster than China just 10 days ago and LHL wants to add an UNAVOIDABLE MORE THAN 100,000 FOREIGNERS to the work force.
Now Dr Tony Tan from GIC warned of risk of shocks may trigger world recession `sooner than expected”
Does the metaphorical “head” knows what the “mouth” is talking? Are we still importing more than 100,000 foreigners, UNAVOIDABLY, to add to our unemployed now that another recession is determined to be a distinct possibility “sooner than expected”? Or is immigration and economic management policies in this country, are made on the run? And if all stuffed up again of another big screw-up and a a bigger shit of mess…”ah well, it happens, …let move on” mantra again??
Are we not in a MESS big enough at this moment? Do we need more of this organised chaos in this sort of economic mismanagement? Where is that “better, betterer and betterest” wonder of labour economic management singing praises of more foreigners displacing Singaporeans in this country’s workforce – in recession waiting over the horizon?
Gilbert, you also know about the economy besides unemployement, divorce and bullying?
Are you intending to start another of your crappy site to help the world out of this economic crisis?
Do we want us to call all the world leaders to visit your site?
How Singaporeans always get screwed by their own government? Answer: The government owns more than 80% of the property. The cost of HBD flats maximum S$30,000 to 40,000. Citizens pay a few hundred thousands for a flat. 99 years lease. Many sell to make a profit when times are good. Many more will suffer loses when prices drop and if they cannot service the loans the flats are taken back and become bankrupt. Inflations go up, wages go down, ministers salaries keep going up with GDP results. There are many reasons why we alway get screwed so wake up and give our VOICE a chance to be heard through an alternative party.
Do not be unduly worried.
They are not that accurate. If not why lose so much money ?.
Inflation is cause when the preceive value of class of asset is much higher than real assets like land, man, factories and technologies improvement.
Taiwan, Korea are technological centers of world whereas Hong Kong is the financial centers for China. Singapore is the worst performance, jack of all trade and master of none. Needless to talk about Biopolis and 1000 phds.
US, Europe and Japan who control methods of production are heading towards long term depression and Singapore will follow them. Our Machevallai state is facing a serious econony tusnami and silver tusnami 20 yrs later.
Singapore GDP slowed drastically in June, 2010 – According the Bloomberg’s News:-
“Bloomberg’s News – 26 July, 2010
Singapore’s Output Rises at Slowest Pace Since February as Demand Cools
Singapore’s industrial production rose at the slowest pace in four months in June as pharmaceutical and electronic manufacturers made fewer goods, suggesting demand may ease as the global recovery cools.
Output at factories, which accounts for about a quarter of the economy, climbed 26.1 percent in June from a year earlier, after a revised 58.4 percent surge in May, the Economic Development Board said in a statement today. The median estimate of 10 economists surveyed by Bloomberg News was for a 38.4 percent gain.”
Still need 100K FT?
These PAPies will be paying for their sins very soon as they’ve been orchestrating,scheming and gerry meandering for their self-serving needs for many decades at the expense of poor Sinkaporeans.With their boast of billions of reserve and investment with GIC,TH and our CPF monies but our welfares and benefits are very neglible.To make matter worst,People are subjected to ever rising cost of living solely due to their flop policies.I’m looking forward for a great financial meltdown soon as GIC and TH will be greatly affected.This will unleash a great punishment to them and a justice to us common folks.
Wah…GIC can now see what is going to happen…
But still buying and investing overseas…
Seems GIC is operating this way…
Minds think one way…not good to invest…but hands and legs going different ways to buy and buy everywhere like nobody business.
Nuts.
@ reallyconcerned:
July 26, 2010 at 2:05 pm
Mate, you missed a very revealing line in your quote comment.
Industrial production dropped a seasonally adjusted 23.4 percent in June from May, when it advanced 5.2 percent from a month earlier.
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=asy1C9np.K9g
Reading in context of sequential development – May industrial production was UP from April by a 5.2% but it CRASHED DOWN 23.4% IN June.
Since manufacturing accounts for 25% of the GDP and manufacturing took a nasty whacking in June 2010, I have to conclude that the flash 19.3% growth in GDP is misleading comparison of the economic performance to wrong base.
SEQUENTIALLY IN 2010, 2nd qtr GDP DID NOT PERFORMED for manufacturing since retail sales were also DOWN COMPARED TO 2ND QTR 2009 BY 3.4%.
With retail in deep shit of worse than 2009 depression figures even and industrial production on a qtr-to-qtr 2010 also shit,how did LHL justify we need another 100,000 more FT?
So with GIC now finally admitting to recession coming, the reasonable inference must be the demand for another 100,000 foreigners is politically-motivated, not economically justified. When that decision was made public, most of the US corporate results is NOT out yet, how did the Government know the dire state of the global outlook matched against the KNOWN COLLAPSE of our manufacturing sector?
Do you agree? You can’t run an economy and Government of extreme bullish 10 days ago and then extreme bearish of outlook now.
Importing more than 100,000 FT is not like a massive airlift rescue operation in flood situation of bringing in more than 100,000 FTs in round-the-clock-airlift in and then round-the clock-airlift out, right?
If the business of Government is run like this rate of spin in decision-making, I got no hope for Singapore.
@ anonymous:
July 26, 2010 at 8:24 pm
I agree with you – in my post, I was implying that Singapore economy is heading towards major problems – decline in trade + property bubble + major failures in big projects (the 2 IRs) + major losses in TH and GIC…….
MIW mention of 100k FT is likely just a “spin” – hopefully getting people to believe the economy is really great. This “spin” only need to last until the GE is over – after that it will be the usual excuses – “due to unforeseen……., we are now in a once in 100 years……blah, blah, blah”
@ reallyconcerned:
July 26, 2010 at 8:52 pm
Yes, you are right. I missed out one BIG ONE too – decline in trade as China slows down, the full impact of EU currency collapse and now volatility of exchange rate hindering trade and worries over US pressure of the Yuan to rise. We know the property bubble and also the IR failures ( if it was successful, retail sales would be much better than 2009 levels and it is definitely NOT according to official statistic). TH and GIC portfolio could have slump back again after the April peak as global market taken a beating.
Yes things could get pretty rough going ahead. I thought it was amazing that Dr Tony Tan mentioned the gloomy outlook over the weekend instead of weekday business day. It must be in his mind the economic worries ahead – DESPITE THE PRE-ELECTION DRUM-BEATING SPIN AND THE 100K PLUS IMMIGRATION IMPORT of little imagination I viewed.
honestly,if the rich and poerful continue in their waywardness-IRRATIONAL EXTREME FORM OF GREED-no country and nothing is truely investible– nothing and nowhere at all!
the rich and poerful of this condensed globalised world need to wake up form their slumbering greed and help bring all the peoples of this globalised village forward or the world’s economy will just face stagnation and general retardation.
If so,no one-not even the rich and the powerful-will experience lasting gains.