Singapore govt government to provide extra S$2.3b in loan support to businesses

Singapore govt government to provide extra S$2.3b in loan support to businesses

By Teo Chia Leen,

SINGAPORE: From next month, the government will enhance its business financing schemes to support an additional S$2.3 billion dollars in loans to help local firms gain access to credit in the current economic slowdown.

The measures will take effect 1st December 2008, and will be valid for one year at which point the enhancements will be reviewed for further extension.

The Ministry of Trade and Industry says the enhancements to its business financing schemes include increasing loan quantums and raising of government risk sharing of loan defaults.

Up to 124,000 local companies will be able to benefit from the schemes.

The enhancements are part of the government’s efforts to act early and ensure local enterprises have sufficient resources to operate.

Under the enhancements, the government also announced a new loan scheme for working capital.

The Bridging Loan Programme allows all local enterprises with more than 10 employees to access credit of up to S$500,000. The default risk is shared equally by the government and the financial institutions.

Small businesses with no more than 10 employees will have access to SPRING’s Micro Loan Programme.

The limit of this loan has been doubled to S$100,000, and the government will increase its portion of risk to 80 per cent to encourage lending to the businesses.

To encourage start-ups, the government will be raising investment capital from S$300,000 to S$1 million under the SPRING’s Start-up Enterprise Development Scheme.

Its Business Angel Scheme will also be raised to S$1.5million as a permanent feature.

The government will also temporarily increase its co-match ratio, which means that start-ups will receive S$2 from the government for every dollar an investor puts into the firm.

Firms will also gain support in branching overseas.

To help the firms spread their wings, eligibility criteria under the existing Internationalisation Financing Scheme (IFS) will be widened.

The caps will be raised to S$300 million for non-trading companies, private non-trading companies and listed trading companies.

This will help to increase the number of companies that qualify for IFS benefits.

- CNA/sf

Source : Channel NewsAsia - 21 Nov 2008

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Singapore govt allocates S$600 million over 2 yrs for skills upgrading programme

Singapore govt allocates S$600 million over 2 yrs for skills upgrading programme

By S Ramesh,

SINGAPORE: The government has set aside S$600 million dollars for the Skills Programme for Upgrading & Resilience (SPUR).

The amount will be spent ramping up the continuing education training centres to increase training places and for absentee payroll for two years.

These details were announced at a joint Ministerial News conference on business financing and manpower upgrading to tackle the current economic downturn.

The Manpower Ministry emphasised that both employers and employees stand to benefit from SPUR.

Employers can enjoy higher course fee support for Workforce Skills Qualifications (WSQ) or courses which are nationally certifiable courses.

The Manpower Ministry says the course fee subsidy will be increased from the current 80 to 90 per cent, to a flat 90 per cent for rank and file courses.

For the course at the Professional, Managers, Executives and Technicians (PMETs) level, the course fee subsidy will be raised from the current 70 per cent to 80 per cent.

Employers will also receive higher absentee payroll under SPUR.

For workers below 40 years of age, the cap will be raised from S$4 to S$6 per hour.

While for those aged 40 and above and with “A” level qualifications and below, the cap will be raised from S$4.50 to S$6.80 per hour.

All these changes to the course fee support and absentee payroll will take effect from Dec 1, 2008.

The Manpower Ministry says SPUR has three key objectives.

The first is to help companies reduce their manpower costs while saving jobs.

Companies can manage their excess manpower through a variety of ways, such as alternative work arrangements like shorter workweeks, temporary layoffs or sending workers for training and claiming absentee payroll.

Secondly, SPUR will help local workers, including those retrenched with training.

Workers can use this opportunity to upgrade their skills or learn new skills that will help them convert to new jobs

And thirdly, SPUR will help both employers and workers build capabilities for the economic recovery.

It will strengthen capabilities in the labour market and ensure that businesses and the workforce are prepared to seize the opportunities when the economy recovers.

- CNA/yt

Source : Channel NewsAsia - 21 Nov 2008

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Singapore cuts GDP forecast, says economy could contract in 2009

Singapore cuts GDP forecast, says economy could contract in 2009

SINGAPORE: Singapore on Friday further downgraded its growth forecast for this year and said the economy could contract in 2009, after weaker than expected third-quarter GDP figures.

Next year, the city-state expects its GDP to range between a contraction of 1.0 per cent and growth of 2.0 per cent, in view of increased uncertainties in the external environment.

In a statement released on Friday, Singapore’s Ministry of Trade and Industry (MTI) said it has also moderated the GDP growth forecast for 2008 downwards to around 2.5 per cent.

This year’s growth forecast was earlier revised from 4 to 5 per cent to around 3 per cent in October.

MTI said economic growth in the developed economies had slowed down, with several countries already in recession.

Consumer and business confidence indicators across the major economies are weak. The contraction in global demand has hit regional economies too.

As a result, Singapore’s trade volumes and other indicators of regional demand, including visitor arrivals, have fallen.

MTI said all these developments would further dampen Singapore’s economic growth in the remaining months of 2008.

In releasing its third quarterly report, MTI said Singapore’s GDP contracted by 0.6 per cent in year-on-year terms.

On an annualised quarter-on-quarter basis, growth declined by 6.8 per cent, compared to a fall of 5.3 per cent in the second quarter.

MTI said the largest contraction came from the manufacturing sector, with the decline led by the electronics and biomedical sciences (BMS) segments.

It said growth in the services sector had started to moderate. Services-producing industries grew by 5.3 per cent in the third quarter, compared to 7.1 per cent in the previous quarter.

MTI said the plunge in stock markets worldwide since mid-September and disruptions in the global credit markets started to affect many of the services and trade-related sectors, especially financial services, wholesale trade, and transport and storage.

It added that Singapore’s economy is expected to face a broad-based slowdown in 2009, with the financial services sector expected to remain weak in 2009. - CNA/de

Source : Channel NewsAsia - 21 Nov 2008

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Microsoft launches BizSpark to boost technology start-ups

Microsoft launches BizSpark to boost technology start-ups

By Cheryl Frois,

SINGAPORE: Microsoft has launched a new global initiative designed to give technology start-ups a boost.

Called BizSpark, part of the programme will significantly subsidise the costs of development software, technology and support for entrepreneurs.

It aims to address issues commonly faced by start-ups such as software access, market support and global visibility.

Start-ups will have fast and easy access to current full-featured Microsoft development tools and production licenses of server products with no upfront costs.

The programme will also provide a worldwide network of hosting partners, offering discounted hosting services to start-ups that would like to take their business or product online using their BizSpark licences.

Start-ups will also have the opportunity to be profiled and promoted on an online start-up directory hosted on the Microsoft Start-up Zone.

In Singapore, Microsoft has the backing of the Media Development Authority of Singapore, SPRING Singapore, Infocomm Development Authority and 11 partners, including venture capitalists, incubators and web-hosters.

It has so far signed up 12 start-ups and aims to enrol 150 by the first year.

To qualify, start-ups need to be privately-held and be in business for less than three years, generating under US$1 million a year in revenue.

More information is available at www.microsoftstartupzone.com

- CNA/de

Source : Channel NewsAsia - 21 Nov 2008

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Singapore Private home rents may fall 15%

Singapore Private home rents may fall 15%

Selling prices of top-end units could drop by up to 22% in months ahead

By Joyce Teo, Property Correspondent

PRIVATE home rents in Singapore are set to drop by up to 15 per cent next year, as the reality of a slowing economy hits home.
Property consultants say landlords are expected to become more flexible, given factors such as ongoing job cuts.

In a report released yesterday, Savills Singapore said the onset of a technical recession, coupled with a weaker employment market and slower expatriate arrivals, will contribute to the fall in rents.

So far, the impact on the local rental market has been limited despite rents beginning to come off their peaks, it said.

‘The quarters ahead should, however, see a more entrenched rental decline as demand weakens in the face of a global economic slowdown,’ said the report.

Given that the full force of the financial crisis erupted in mid-September, the rental property market has yet to feel the full impact, Savills Singapore said. In terms of top-of-the-market rents, known as prime rents, it expects a fall of 7 to 13 per cent next year.

Another consultancy, Knight Frank, is projecting a bigger fall of 10 to 15 per cent in average islandwide rents next year.

The Urban Redevelopment Authority recorded a 0.9 per cent dip in private home rents in the third quarter, the first fall after 17 quarters of growth.

‘Some landlords are already cutting rents to retain tenants. We may see more aggressive cuts by landlords if more multinational companies cut their headcounts,’ said Knight Frank’s director of research and consultancy, Mr Nicholas Mak.

However, Savills Singapore’s associate director of residential sales, Mr Patrick Lai, believes the fall in rents will not be big as there is still stable demand.

‘There is still a steady number of expatriates coming in as Asia, particularly Singapore and Hong Kong, is where companies want to be now. To put it bluntly, we are benefiting from the meltdown in other parts of the world,’ he said.

However, rents are more negotiable now as tenants have more choice, said Mr Lai.

This quarter, new supply entering the market includes the second tower of The Sail @ Marina Bay with 681 units, the 173-unit St Regis Residences and the 110-unit Paterson Residence, Savills Singapore said.

Next year, landlords in prime areas will have to contend with even more competition as more condos are completed.

Also, most expats are now on local terms, or arrange their own leases, and they usually do not want to use all their rental budget, said Mr Lai.

A property agent specialising in expat rents said she has not completed any rental deals since October.

‘Last year, I was busy throughout the year. This year, it started to slow from January. It is so quiet now,’ she said.

‘Those who have advertised for a few months are willing to lower their asking rents but many others continue to hold on to the same asking levels.’

A renovated 1,650 sq ft unit at Pinewood Gardens at Balmoral Park is now available at $6,000 a month or $3.64 per sq ft - already lower than most other done deals at the development - but a potential tenant is willing to take it at only $5,000 a month or $3.03 psf, she said.

In a separate report, Savills Singapore said it expects prices of high-end and super-luxury homes - which are more vulnerable to the deteriorating global investment climate - to fall 22 per cent from the current quarter until the end of next year. Islandwide, the decline in sale prices over the same period is placed at a smaller 10 to 15 per cent, as mass-market homes catering mostly to upgraders should see a limited price fall.

Rental yields, however, have risen as the fall in rents is smaller than the fall in prices, said Mr Ku Swee Yong of Savills Singapore.

Knight Frank’s Mr Mak added: ‘Residential rents have moved up very fast in the past three years and they could come down just as fast.

POOR BUSINESS
‘Last year, I was busy throughout the year. This year, it started to slow from January. It is so quiet now.’

A property agent specialising in expat rentals

Source : Straits Times - 21 Nov 2008

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Singapore’s biggest employer still hiring

Singapore’s biggest employer still hiring

Civil service looking for teachers, school counsellors, and officers to beef up Home Team

By Li Xueying, Political Correspondent

AMID the rounds of corporate layoffs, Singapore’s biggest employer - the civil service - is still hiring.
The Ministry of Education (MOE), for instance, is looking for teachers and school counsellors, among others.

Also recruiting is the Ministry of Home Affairs (MHA). It wants to beef up its Home Team - which includes police, prison and immigration officers.

‘Ministries are still recruiting talent to meet organisational needs,’ the Public Service Division (PSD), a department in the Prime Minister’s Office that oversees civil service matters, said yesterday.

It was responding to questions from The Straits Times about measures it has in place to manage excess employees, including whether there are plans for retrenchments.

In its reply, the PSD said the guidelines it follows share the same principles as those issued on Wednesday by the Manpower Ministry, the National Trades Union Congress (NTUC) and Singapore National Employers Federation for companies.

Those guidelines encourage bosses to consider measures such as flexible work arrangements, temporary layoffs, a shorter work week, sending employees for training and upgrading courses, and adjusting salaries.

Retrenchment is ‘the last resort’ in dealing with surplus manpower arising from restructuring or best-sourcing, the PSD said, echoing a key point made in Wednesday’s guidelines.

‘Government agencies will explore other options first, such as retraining affected workers to do other jobs in the agency or redeploying them to other agencies within the civil service,’ the PSD said.

Its guidelines also emphasise the need to engage the unions early, and to work with them on areas such as retraining and employment aid, it added.

In keeping with this, the PSD said government agencies will continue to train their employees through programmes that help them upgrade and acquire new skills.

The civil service employs more than 60,000 people.

As for the continuing recruitment drive, an MOE spokesman said it has a target of having 30,000 teachers by 2010. It currently employs about 29,000 teachers.

The ministry also launched a new scheme earlier this year to supplement teachers in schools with ‘allied educators’ - teacher aides, school counsellors and special needs officers.

‘Currently, there are about 600 allied educators in our schools,’ said the spokesman. ‘MOE aims to increase the number of allied educators fourfold to 2,800 by 2016.’

MHA officials said previously that steps were being taken to increase recruitment of police as well as Immigration and Checkpoints Authority officers.

Source : Straits Times - 21 Nov 2008

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Bank to lay off up to 250 in Singapore

Bank to lay off up to 250 in Singapore

By Francis Chan

ABOUT 200 to 250 jobs are set to be shed from the Singapore unit of United States banking behemoth Citigroup, a source has told The Straits Times, as part of the worldwide loss of 52,000 jobs announced on Monday.
A handful of staff, mainly relationship managers, have been notified that they are being let go, other sources say.

Given the woes of the US parent Citigroup, there has also been talk that Citi Singapore is starting to tighten credit. The US banking giant is a major player here in credit cards, car loans and other forms of secured and unsecured credit. Any major tightening of this sort of credit would have widespread implications for consumers and businesses here.

But when contacted yesterday, Citi Singapore said that it does not comment on market speculation.

In terms of job losses, The Straits Times has learnt of only a handful of staff, mainly relationship managers at the Asia Pacific unit of Citi Global Wealth Management, who have been officially notified that they have been let go. People familiar with the matter have confirmed that the bank - which had earlier said that the cuts would be ‘modest’ - has started notifying affected staff here.

Affected staff at Citi’s Global Wealth Management unit here were informed on Wednesday and yesterday. Staff there who had not been told by last night should be safe for now, sources say. However, sources also say not all Citi Singapore staff earmarked for retrenchment have been notified.

And not all will be told to leave immediately. ‘It will not be a situation where they will be told to pack up immediately and have to leave unceremoniously,’ said another source.

Over 9,000 people work for Citi Singapore, which remains one of the largest employers in the finance sector. If the 200 to 250 layoffs at Citi Singapore proves to be correct, that is just 3 per cent of its total headcount here.

The Straits Times understands the bank has kept the Manpower Ministry, the Monetary Authority of Singapore and relevant staff union bodies in the loop over its plans to cut jobs.

Source : Straits Times - 21 Nov 2008

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That sinking feeling at Citigroup

That sinking feeling at Citigroup

Can the banking giant’s business model help it survive, observers ask

By Goh Eng Yeow

JUST days after US banking giant Citigroup announced 52,000 job cuts, its share price has suffered a record plunge - alarming investors across the globe.
On Wednesday in New York, the United States’ No. 2 bank by assets slumped 23 per cent to a 13-year low of US$6.40.

That was even worse than the 21.7 per cent plunge which Citigroup’s share price had suffered in the Oct 19, 1987 crash.

In early trading on Wall Street last night, Citigroup’s shares lost 70 US cents to US$5.70, despite news that Saudi billionaire Prince Alwaleed bin Talal will increase his stake in the bank to 5 per cent, from less than 4 per cent now.

Citigroup is reeling on concerns that mounting losses from credit cards, mortgages and toxic debt could overwhelm its efforts to slash costs and boost deposits.

A key part of the efforts, announced Monday by chief executive Vikram Pandit, was the slashing of 52,000 jobs to cut its global workforce to about 300,000.

This may have looked dramatic, but investors are clearly unconvinced that the cost savings from the layoffs are enough to restore the bank to health.

‘People are looking at their business model and wondering how on earth they’re going to be able to survive,’ said fixed-income manager William Larkin at Cabot Money management in Salem, Massachusetts, reported Reuters.

Some observers said the key trigger for the latest rout in Citigroup was a decision to take US$17.4 billion (S$26.6 billion) of assets tainted by the credit crisis onto its books. These assets were in funds known as structured investment vehicles (SIVs).

Shifting the tainted assets onto its books means Citigroup may have to take another massive loss on its bottom line.

‘The whole thing echoes, quite frankly, of Bear Stearns,’ chief investment officer David Dietze of Point View Financial Services in New Jersey told Reuters.

Wall Street bank Bear Stearns almost went bankrupt in March, as its hedge funds imploded, only to be rescued by banking giant JPMorgan Chase in a US government-brokered buyout.

Asian investors have been watching Citigroup’s plunge nervously, given the extensive banking franchise it operates in Asia. This is much closer to home than when other US commercial banks - Washington Mutual and Wachovia - suffered similar share price collapses this year.

In Singapore, Citigroup is one of the largest employers with over 9,000 staff. It operates a huge retail banking operation and has an extensive lending programme ranging from share financing to motor car loans, housing loans and corporate lending.

In January, the Government of Singapore Investment Corporation invested US$6.88 billion in the US bank via a financial instrument known as ‘perpetual convertible security’. The chief executives of two local banks - DBS Group Holdings’ Richard Stanley and OCBC Bank’s David Conner - are both former Citibankers.

As Citigroup sinks deeper into the crisis, other banks are also being hurt by the fallout, because of the huge volume of transactions it has with other banks.

In the wake of Citigroup’s plunge, JPMorgan fell 11.4 per cent, Wells Fargo dropped 10.3 per cent, while Bank of America lost 14 per cent.

Across the Asian region yesterday, banks were the big losers. HSBC fell 4.5 per cent in Hong Kong while at home, DBS was down 3.6 per cent and United Overseas Bank lost 5 per cent.

A key indicator of Citigroup’s woes is the surge in the cost for investors, of effectively buying insurance against a possible default by Citigroup.

This is on the so-called credit default swap (CDS) market where CDS premiums on Citi widened by 50 per cent to 3.6 percentage points on Wednesday, reflecting investors’ willingness to pay more to get default protection on Citigroup.

That means an investor must pay US$360,000 to get US$10 million protection on Citigroup debts.

One lawyer here attributed Citigroup’s woes to US Treasury Secretary Henry Paulson’s decision against buying US banks’ distressed mortgage assets using a US$700 billion bailout fund approved by the US Congress last month.

In May, Citigroup had already signalled that it wanted to shed up to US$400 billion of assets over the next two to three years.

But with Mr Paulson’s change of heart, investors are losing hope that Citigroup will be able to get rid of them at a decent price since the US government - possibly the only buyer - is no longer interested.

The problem is further complicated as any big loss Citigroup takes on these assets would be bigger than the bank’s diminished market value of US$34 billion.

To resolve the problem, some investors want a break-up of Citigroup, which operates in more than 100 countries.

‘Break it up before it turns into another AIG,’ portfolio manager William Smith told Reuters, referring to American International Group, which was given a US$150 billion life-line to stay afloat while it sells its assets to cover its losses.

Source : Straits Times - 21 Nov 2008

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Cut Singapore COE supply? Only for the right reasons

Cut Singapore COE supply? Only for the right reasons

Quota-cut pleas from motor traders do not deserve much sympathy

By Christopher Tan, Senior Correspondent

CUT COE supply to prop up car prices? At first glance, it sounds like a preposterous suggestion. People generally want low car prices, not high.
But what about existing car owners, who suffer lower resale values when COE prices - and consequently, new car prices - fall?

That is the thrust of an argument by the Singapore Vehicle Traders Association and the Automotive Importers and Exporters Association in their petition to the Government.

They are asking for car COE quotas to be trimmed by 25 per cent for the next six months, to prevent the car industry from ‘collapse’.

Why not? After all, state land parcels released for sale are timed judiciously; and public projects are held back to prevent price spirals. So why can’t economic concerns influence COE supply, too?

Here is why.

The explicit role of the certificate of entitlement system is to manage a sustainable vehicle growth rate. It is to prevent Singapore from turning into a gigantic carpark. Nothing else.

Its supply is determined by a prescribed formula: number of certificates matching number of vehicles taken off the road + an allowable annual growth rate of 3 per cent (which is set to be cut to 1.5 per cent from next year).

To tamper with the supply for reasons other than the above would be counterproductive. It would be a precedent that is hard to undo, and one that will rob the quota system of some integrity.

The 18-year-old system has witnessed its share of economic booms and busts.

In the 1990s, when car COE premiums averaged $40,000 and hit as high as $110,000, there was not much ado from the trade about raising COE supply. Sure, there were private mutterings, but no formal representations.

The new industry might have been selling fewer cars, but profit margins were enormous - $25,000 for a mid-size Honda or Toyota, $50,000 for a big Volvo and over $90,000 for a Mercedes limo.

And many traders built their fortunes on used cars.

But someone paid the price: consumers. Years later, when COE premiums softened, many car owners were saddled with rides that were worth less than their scrap value. Which triggered waves of relatively new cars being sent to the scrapyard or re-exported.

But buyers were as much to blame as sellers. After all, they were the ones willing to fork out $130,000 for a Toyota Corolla and nearly $300,000 for a Mercedes E-class.

(Today, you can get the same cars for $55,000 and $137,000 respectively.)

The current phenomenon of low COE premiums (including Wednesday’s historic $2 premium) is not the sole doing of the economy.

Sellers, buyers, and last but not least, lenders are largely to blame.

As soon as the Monetary Authority of Singapore deregulated the vehicle loan market in January 2003, banks and finance companies lured car buyers with easy credit.

Hong Leong Singapore Finance was first off the block with a zero down payment 10-year loan package.

A few years later, newcomer GE Money muscled in by targeting parallel importers and used car dealers.

The 100 per cent, 10-year loans were not enough. Cash rebates were thrown in. Yes, you were paid cash to buy a car!

The schemes attracted many consumers who would not have been able to afford a car otherwise. The lenders were not worried, because they figured that COE supply would shrink in the coming years, and thus car resale values would rise. The sellers faced no risk and were not worried.

Guess what. The downturn hit - hard and fast.

The United States - the world’s largest vehicle market - now faces the same problem. After 9/11, car-makers handed out easy loans (often with zero interest) to lift consumer sentiment.

Well, we know how that story ended. General Motors, Ford and Chrysler are today asking Washington for a US$25 billion bailout.

The two motor trade associations in Singapore are asking for a bit less. They want COE supply to be crimped so that premiums can return to the $10,000-$15,000 region - from between $2 and $6,889 today.

It affects more than just us, they say. It affects car owners and lenders as well.

But no sympathy should be wasted on the latter. If they are facing a high loan delinquency rate or hold collateral that is worth less than what they are owed, they brought it on themselves.

Car owners should not fret, unless they are among those who took up those impossibly huge financing packages dangled by the lenders. If for some reason they cannot continue to service their loans, they could be in a bit of a bind.

Those who have been prudent and who are not in a hurry to sell their cars will ride out the current storm - as they did in the past.

As for the motor traders, they made a business decision, not unlike the property developer who bid aggressively for a plot of land or the wine stockist who bought a warehouse load of champagne.

They will have to wait out the slowdown like everyone else.

Having said all that, there is perhaps one valid reason why COE supply should be trimmed: There are more certificates available than the number of cars taken off the road.

For instance, 5,091 cars were scrapped last month. But there were 7,457 COEs available for bidding. Even if you factor in the allowable growth rate, there were 1,000 extra COEs in the system.

On that front, the numbers need to be tweaked.

Source : Straits Times - 21 Nov 2008

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Stocks tumble on bad news from US and Japan

Stocks tumble on bad news from US and Japan

Falling prices, poor export figures and Citi’s woes trigger big losses

By Goh Eng Yeow

STOCK markets across Asia suffered a fresh round of crushing losses yesterday in the wake of unrelenting gloomy news from the world’s two biggest economies, the United States and Japan.
Investors sold stocks frantically, especially banks, as the spectre of potentially crippling deflation emerged after US consumer prices fell 1 per cent last month - their largest recorded drop ever.

Also, major fears now centre on the financial health of the US’ No. 2 bank Citigroup, which operates a vast global financial network.

Adding to the air of despondency, the US Federal Reserve said a US slowdown could last until at least the middle of next year. Also, US new home-building figures were the worst on record.

In Japan, exports slumped 7.7 per cent, their biggest drop in seven years.

The mood for Asia was set by a 5.1 per cent nose-dive in the Dow Jones Industrial Index on Wednesday to below 7,997.28 points - its lowest level since March 31, 2003. In early trading yesterday, the Dow was 167.66 points or 2.1 per cent lower at 7,829.62.

In response to Wall Street’s nose-dive, major stock indexes across Asia yesterday fell precariously close to last month’s meltdown levels.

In Singapore, the benchmark Straits Times Index tumbled 51.64 points, or 3.1 per cent, to 1,613.95 as it fell near the four-year low of 1,600.28 hit on Oct 24.

Elsewhere, the sell-off slashed 4.04 per cent off Hong Kong’s Hang Seng Index, 6.7 per cent off Seoul’s Kospi Index and 6.89 per cent off Tokyo’s Nikkei-225 Index.

Europe was not spared either. At mid-day, London, Paris and Frankfurt had fallen by about 2 per cent each.

‘There doesn’t seem to be any bottom in sight. The bad news keeps getting worse,’ said Singapore trader Peter Ong.

The decline in US consumer prices stoked fears that the US might be entering a prolonged period of economic stagnation. Deflation, or falling consumer prices, is regarded by economists as a death spiral as spending dries up and debt becomes more burdensome. Japan’s economy was nearly suffocated by deflation for much of the past 18 years.

This environment is stifling central banks’ efforts to simulate demand by cutting interest rates, Merrill Lynch analysts Michael Hartnett and Michael Penn noted in their latest fund manager survey.

Another key worry is the risk of more businesses going to the wall because of the credit squeeze caused by the severe problems stalking Citigroup whose share price plunged a record 23 per cent in New York on Wednesday and a further 11 per cent in early trade yesterday.

Fears that the big three US carmakers could fail to secure a US$25 billion (S$38 billion) financial bailout from the US government also unnerved investors as they fretted about the impact worldwide of a possible collapse of these giants.

Crude oil prices fell below US$53 a barrel, close to a two-year low, hurt by plummeting global stock markets and weakening demand in the growing downturn. Yesterday, oil prices fell further, going below US$50.

The latest spate of bad news also took its toll on the greenback which had been regaining lustre as a safe-haven currency, as it lost ground against the Japanese yen.

Source : Straits Times - 21 Nov 2008

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