(Mar 5): Singapore’s Trade and Industry Minister Chan Chun Sing said it’ll take more than an interest rate cut by the Federal Reserve to boost sentiment in the global economy amid a spreading coronavirus outbreak.
“It takes more than just a Fed cut to restore the confidence because people must see and feel for themselves the confidence in how governments are handling this in a coherent way,” Chan said in an interview Wednesday with Bloomberg TV’s Haslinda Amin.
The Fed on Tuesday slashed interest rates by half a percentage point in the first such emergency move since the 2008 financial crisis, reflecting global policy makers’ concern about the virus’s impact on growth.
“I’m not sure that I would characterize it as a panic but I think many central banks in the world would want to work together to try to restore confidence in the current situation,” Chan said.
It’s “too early to say” if the global economy will plunge into recession, Chan said, although there’s growing concern the recovery will be U-shaped, or L-shaped, implying a more protracted rebound.
Chan said that while each country will have to respond based on their own circumstances, governments will need to reassure investors and consumers that they have a longer-term vision.
‘Deep Confidence’
After rallying earlier in the week on anticipation of action, the Standard & Poor’s 500 index fell more than 3% while the 10-year Treasury yield plunged below 1% after the Fed’s rate cut Tuesday in Washington.
“If the market thinks that we’re all just trying to do the here-and-now, the market will have a certain level of confidence, but it’s not deep confidence, as I would call it,” Chan told Bloomberg reporters later.
“But if the market looks at it and says: ‘Okay not only can you take the here-and-now, but you do have a plan, a vision of where you want to go’ – that’s a different kind of confidence,” he said.
Trade-reliant Singapore last month lowered its economic growth forecast for 2020 to a midpoint of 0.5% from 1.5% previously. It also unveiled a budget with $6.4 billion in targeted measures to support sectors hurt by the virus outbreak and US-China trade tensions last year.
Chan said he remains “cautiously optimistic” about the city state’s manufacturing outlook. While some sectors will require adjustment, there are others like biopharma and digital technology, that may do better, he said.
On the electronics sector, “in the short term, I think you will see a bit of turbulence but the longer term trend, with the introduction of 5G and associated technologies, that will lead the global electronics recovery,” he said.
“If there’s a worldwide recession, then of course we can’t be insulated,” though it’s too early to tell how long the outbreak might hurt the economy, Chan said.
If the virus becomes a pandemic, or if the virus starts to mutate and the fatality rate surges, “then we are in a very different situation,” the minister said. “It’s almost like 9-11 all over again, and you need a fresh mandate to chart a very different path altogether. That cannot be ruled out.”
