The US Federal Reserve estimates that the rate of increase in industrial production has been held back a couple of percentage points in August and September overall. However, preliminary National Accounts data for the third quarter point to continued firm growth. Households and companies have continued to boost their consumption and investment at a fairly stable rate. The purchasing managers index for both the manufacturing sector and the services sectors in October indicate relatively firm developments at the beginning of the fourth quarter as well. Elsewhere in the world, too, there have been a number of positive economic signals. In October, the purchasing managers index rose in several European countries and in Japan. The German IFO index also showed a positive trend in October. In the UK, however, the recent economic slowdown has continued, as shown, among other things, by preliminary GDP data for the third quarter. Inflation abroad has turned out somewhat higher recently than we anticipated in the latest Inflation Report. In the US, inflation rose sharply in September, to almost five per cent. Excluding energy prices, though, it is still at roughly two per cent. The US Federal Reserve again raised the federal funds rate at its latest monetary policy meeting, bringing it up to 4 per cent, i.e. 3 percentage points higher than when the monetary tightening cycle was begun in June 2004. In the euro area and some other countries, too, inflation has picked up more than anticipated recently.
But in typical Singapore fashion, we kept our cool to battle the crises and, at the same time, strategise to meet the larger challenges posed by globalisation. We formed the Economic Review Committee (ERC). The ERC came up with a comprehensive strategy to restructure, upgrade and transform our economy. The government accepted most of the ERC’s recommendations. We have since cut corporate and personal income taxes, reduced business costs, made wages more flexible, restructured the manufacturing sector, invested more in R & D (Research and Development) and revamped our education system. Our economy is now stronger and more broad-based than ever before. In 2006, our GDP was $ billion, 55% bigger than in 1998. Annual growth rate over the past 3 years averaged 8%, double the figure for the period between 1997 and 2002. This year, jobs are chasing after people. Two weeks ago, I attended the Gala Dinner for Merrill Lynch’s inaugural “Pan Asia Rising Stars Conference”. Several foreign bankers and business executives I met – some had not visited Singapore for many years and a few were here for the first time – told me that they were surprised and excited by the “buzz” in Singapore. It is not just the business buzz of the financial industry, the Integrated Resorts, the sizzling property market, and so on. It is also the glitz of our nightlife and our arts, culture and restaurant scene. How have we managed this quick and dramatic rebound?