Friday, November 06, 2015

Preparing for the economic downturn

Dear Mr. Tan
An economic downturn looks quite likely, especially in Singapore. We are affected by a weak global economy and weakness in China, but we also have our domestic factors to make the problem worse, especially in the property and new car sales.

What should ordinary people do to cope with the likely recession and increase in unemployment?

From an individual perspective, it is time to reduce spending and to increase savings. If you lose your job, you have some savings to tide over the difficult time.

From a social perspective, this "increase saving" will cause further problems to a weak economy. If too many people cut down on their spending, the economy will weaken further. The businesses that depend on consumer spending will be badly affected. Many will have to close down. This will cause a spiral effect.

In most countries, the government can help to cushion off the impact by reducing interest rate to help the businesses to survive. The low interest rate may encourage the ordinary people to increase their spending, but this is not likely to happen due to the uncertainty in the economy.

However, the current interest rate is very low in Singapore now. A further reduction in interest rate will not help to reduce the business cost.

I guess that it will be more difficult to manage the economic downturn in Singapore. It might help if the government decides to give a monthly cash allowance to workers who are retrenched during the downturn. It is an unemployment benefit, but it should be considered for the short term.


Anthony Tan said...

The lowering of interest rate to stimulate the economy and spending has been running for years. It amounts to punishing the prudent and savers and rewarding the speculators, pushing up all asset prices which results in higher cost of living for everyone. Downturns are meant to be, incompetitive businesses are meant to be weeded out, people who over extended on property purchases are meant to be bankrupted and have it auctioned off, rental properties/shops/stalls are meant to be vacated so that rentals can come down. If there is no downturn to reset, the bubble will just grow and grow.

Anonymous said...

They have to remove the GST first if they want to convince consumers to spend.

Anonymous said...

What are the signs & symptoms?

COE prices are still above 50K
HDB prices ( new or resale ) are still stable
Straits Times Index still above 3,000
Interest rates for savings a/c are still below 1%
Queues form outside retailers just to buy "trendy" clothes
Its still difficult to get a taxi at roadside.
Trains are still packed.

Tomorrow go to the hawker centres and there will be queues for all the stalls.

I must have swallowed the blue pill.

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