This will help local bank managements to concentrate on their core business of banking and finance, and limit the risk of contagion from non-financial businesses to the banks’ business. Market discipline and caveat emptor Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a meritbased supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests.
In the US, weaknesses in housing and labour markets are persistent. Uncertainty over employment prospects will cap the strength of consumer spending. But business sentiments (as measured by the purchasing managers’ index) and new orders for capital goods point to continued economic expansion, though at a slower pace. In Europe, the core economies such as Germany and France should continue to perform well. Industrial output and business investment have been robust. But sovereign debt concerns in peripheral EU economies have escalated. They cast some uncertainty over Europe’s near-term growth prospects. In Japan, the economy has been hit hard by the earthquake and tsunami. But there are signs that the worst has passed as production has begun to gradually recover. Emerging Asia remains on a relatively firm footing. Domestic demand continues to be resilient, supported by robust income growth and generally healthy household and corporate balance sheets. On balance, the Singapore economy should register moderate growth for the rest of this year. Some industry-specific factors that dragged down growth in electronics and pharmaceuticals are expected to be transitory and the manufacturing sector should pick up from the soft patch we saw in Q2. The services industries, especially financial and tourismrelated activities, should remain firm due to strong regional demand. MTI and MAS are reviewing Singapore’s GDP growth forecast. For now, our sense is that the 5–7% forecast range remains intact. But if the pick-up from the downturn in Q2 is weaker than currently expected, growth could come in at the lower half of the range.