For a tiny place so intimately tied to the ebbs and flows of finance, it’s hard to see signs in Singapore of an approaching world recession. The city-state is again sucking in foreign labor, driving the jobless rate to microscopic levels. The country’s airline is racking up profits and the increase in housing rents is staggering. The global slowdown often feels like it’s happening on another planet.
The question might not be so much whether Singapore’s economy has become a bubble, a loaded term that implies a painful collapse awaits, but how long the nation can continue to defy gravity. Officials have warned that big shifts worldwide pose enormous challenges: the end of a decades-long era of low inflation and interest rates, a desire to rein in supply chains, and intensified rivalry between China and the US. Dire stuff — in theory — for a republic that grew rich during the heyday of globalization and capital-market expansion.
When and how this catches up with Singapore depends a lot on Covid and its legacies. Specifically, the reopening lead Singapore has on rivals. After a couple of false dawns, the city-state has dispensed with almost all restrictions. Mandatory masking indoors ended in August. Barely a week goes by without Singapore hosting at least one big international conference. Hong Kong still wrestles with testing rules for travelers. The territory’s hidebound approach, coupled with the national security law imposed by Beijing, has prompted an exodus. It’s hard to go to any kind of social or business event in Singapore and not encounter some who have fled.
Japan is just opening to visitors; arriving in Tokyo for a business trip last week felt like landing at Singapore’s Changi Airport — in December. Lines of officials waited to check vaccine certificates and apps before you got to Narita's immigration counters, very few of which were staffed. Masks are still commonly worn indoors. (Japan had a tradition of wearing face coverings well before the pandemic.)
Singapore is making the most of its head start. Gross domestic product picked up significantly last quarter, the overall unemployment rate has declined to 2% and inflation is the highest in 14 years. The central bank has tightened policy five times in little more than a year and coupled its measures to combat price surges with rumblings about the deteriorating global picture. “In the quarters ahead, the drag on economic activity from the globally synchronized tightening in monetary policy will intensify,” the Monetary Authority of Singapore cautioned last month.
The city-state’s gravitational pull is reflected in the cost of shelter. Huge markups in prices and rent are a frequent dinner party topic. The rent for one of your columnists is going up by 30% when the lease on a three-bedroom apartment is renewed early next year — and he may be one of the lucky ones. Offers are made on property without even an inspection. People have thought they locked in only to be swooped by someone offering far more. In Hong Kong, colleagues are moving to bigger residences for less.
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Is the property market dangerously hot and should policymakers step in? A case could be made for hands off were it not for links with public housing. About 78% of resident households live in subsidized Housing & Development Board flats, which also represent the bulk of Singaporeans’ wealth. HDB prices, therefore, are a sensitive topic, with the government mediating the competing demands of affordability for the young and prosperity for the middle-aged and the old.
The pandemic lockdowns messed up supply of new public housing, pushing pent-up demand onto the HDB resale market. Prices have risen at 10%-plus annual rates for six straight quarters. This isn’t alarming if you consider the 2007-2011 boom. Back then, apartments became 80% more expensive over five years. They have surged 25% cumulatively over the past two years. Neither episode comes anywhere near the pre-Asian-crisis mania of 1992-1996 when HDB resale prices had quadrupled.
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But since then, the city-state’s society has aged. The median age last year was 42 years, compared with 30 in 1990. Today’s population is bound to be more averse to the idea of a prolonged property-market slump than a more youthful pre-crisis generation. Which means the government will be careful about how much speculation it’s going to allow. Since the 2009 start of the global cheap-money regime, “property cooling measures” have been an integral part of Singapore’s toolkit alongside monetary and fiscal policies. Expect them to carry over into a tight-money era if HDB resale prices don’t slow down.
There are several reasons why policymakers may act sooner rather than later. For one thing, the current inflation challenge is serious. While most price increases arrive in the small, open economy with imported goods and services, the domestic labor market is taut. Authorities won’t want to complicate their task by allowing an uninterrupted surge in housing prices and rents to turn into a wage-price spiral — not when they’re spending $3.56 billion to support families with this year’s higher cost of living and committing $8 billion to help them cope with higher consumption taxes from next year.
Given this political context, hand-wringing by expats over lattes and chardonnay at tony cafes downtown counts for little. But the country’s success has always hinged on its reputation as a base camp for large corporations, and its goal to remain a regional hub depends on its relative attractiveness. There’s more to this than property. The island boasts good schools, great infrastructure and low crime.
Has Singapore done lots of things right or have its rivals missed a trick? Like most places, it had its share of policy U-turns and made mistakes during Covid. However, the more you travel outside Singapore, the easier it is to look past its pandemic shortcomings.
It’s enough to grapple with the boom that Covid has bequeathed the city-state. - Bloomberg Opinion
