US economic forecast dims, Obama boosts recovery plans

US economic forecast dims, Obama boosts recovery plans

He aims to create or save 3 million jobs, ups size of rescue package

WASHINGTON: - Warned that the economy may get considerably worse, President-elect Barack Obama has more than tripled the size of the economic stimulus package he embraced during the campaign and is aiming to create or save three million jobs, up from 2.5 million, according to transition officials.
Mr Obama’s team is crafting a massive new economic stimulus package to reach his revised job goal. Though the President-elect has declined to specify the amount, transition aides told Capitol Hill staff last week that the plan may cost US$675 billion to US$775 billion (S$985 billion to S$1.1 trillion) over two years.

Those numbers far exceed the more modest stimulus package that Mr Obama laid out during the campaign, underscoring a growing worry that the economy is in a tailspin. As recently as mid-October, the President-elect was touting a stimulus of about US$175 billion.

Summarising the incoming administration’s view, Vice President-elect Joe Biden said in an interview with ABC’s George Stephanopoulos aired yesterday that the economy is at risk of ‘absolutely tanking’.

Mr Obama met privately with top economic advisers last Tuesday and received a sobering briefing. Aides cautioned that without an aggressive recovery plan, the economy could lose as many as four million jobs through 2011 and the unemployment rate could rise above 9 per cent.

Unemployment last month reached 6.7 per cent, the highest level in 15 years. The last time the jobless rate topped 9 per cent was in 1983, during Ronald Reagan’s first term as president. Ms Christina Romer, incoming chairman of the Council of Economic Advisers and an expert on the Great Depression, told Mr Obama that forecasts over the short- and long-term had darkened in recent weeks and that looming economic troubles eclipsed anything seen in the last 50 years, transition officials said.

Confronted with that prospect, Mr Obama said that the job creation figure he had announced in his weekly radio address last month - 2.5 million - would not be enough to avert disaster. He called for creating or preserving an additional 500,000 jobs over the next two years.

Since his election, the President-elect has heard nothing but dire reports about the economy he is about to inherit. Last month, employers eliminated 533,000 jobs, the most since 1974.

His call for a more ambitious plan to create and retain jobs may involve a bit of psychology.

Consumers fearful of losing their jobs have stopped opening their wallets, dampening consumer spending. With Mr Obama pledging to aggressively save jobs as well as create new ones, he is sending a message that people need not worry about being out of work, one economic adviser said. That, in turn, could encourage spending and bolster the economy.

‘The big fear people have is loss of jobs. That’s haunting the whole economy,’ said the adviser, who spoke on condition of anonymity. ‘People are holding back from buying because of fear of job loss. So, presumably, if people hear the goal is to create or preserve three million jobs, layoffs aren’t quite as scary.’

Mr Obama’s plans to revive the economy hinge on the passage of his stimulus package, which Congress plans to take up on Jan 6. Though he has the votes in the House, the Senate is another matter. Republicans could delay or derail it.

Republican leaders have voiced scepticism about the stimulus, warning that there must be a thorough public vetting of a Bill that costs so much. They have also vowed to oppose any plan that includes pork-barrel projects meant to reward special interests.

In one notable example, Republicans cite with derision a proposal by US mayors that includes a US$1.5 million initiative to chase prostitutes off the streets of Dayton, Ohio.

To reassure sceptics and build a durable coalition, the President-elect is insisting that the stimulus package meet certain standards, transition officials said. The Bill must:

Underwrite projects that will produce jobs without delay.
li> Avoid pet projects put in by lawmakers to reward special interests.

Fund programmes based on objective evidence, rather than partisan considerations.

Allow for public debate.
Some economists say Mr Obama’s new job goals may be rooted in salesmanship. It is virtually impossible to quantify jobs saved, so the figures have little meaning, they said. By raising the ante to three million, he may have something else in mind: Persuading the public that a stimulus costing hundreds of billions of dollars is necessary.

LOS ANGELES TIMES

Source : Straits Times - 22 Dec 2008

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Singapore Govt will try to keep transport costs down

Singapore Govt will try to keep transport costs down

But low oil prices won’t translate into fare drop, says Transport Minister
By Li Xueying, Political Correspondent

WITH 2009 shaping up to be a ‘difficult year’, the Government will try to moderate public transport costs next year, said Transport Minister Raymond Lim yesterday.
The Public Transport Council (PTC) will continue to take economic conditions into account in its annual assessment of bus and train fares, due in the second half of next year, he added.

But he tempered expectations that falling oil prices will translate into a similar drop in fares, saying that there is no direct correlation between the two.

If there were, public transport fares would have shot up 40 per cent between last year and earlier this year on the back of a spike in oil prices over the period, but did not, he said.

Mr Lim was speaking at a dialogue with about 300 MacPherson residents. He was accompanied by Member of Parliament for MacPherson Matthias Yao.

In the morning, he toured the constituency, distributing food rations, chatting with residents and participating in a ceremony to lock in a time capsule containing items such as community photos.

This was followed by the hour-long dialogue where the minister answered six questions. It was clear that concerns about the cost of living amid a recession were on the top of most minds.

Mr Gillian Teo, 54, a business development manager, expressed hope that there would not be any public transport fare increases next year, as retrenchments mount. Mr Lim responded: ‘I can understand his concern. It’s going to be a difficult year next year, so we’ll try our best if possible to moderate the costs.

The PTC, which regulates public transport fares, will have to ’sit down’ and weigh various factors including the impact on commuters, on transport operators and the economic conditions. The last round of fare adjustments was in September, when it approved an overall net hike of 0.7 per cent in bus and train fares.

But the minister also dispelled the hope expressed in a question that he said many have put to him: With oil prices now plummeting, why not fares too? Oil prices have fallen to about US$33 a barrel from a record high of US$147.27 in July.

‘That’s a fair question,’ he said. ‘The answer is that public transport fares are not directly linked to oil prices.’

Instead, they are tied to what Mr Lim called national factors: the level of inflation and average wage increases.

He pointed out that ‘from 2007 to this year… oil prices went up 40 per cent, but fares went up just 0.7 per cent’.

Another resident asked if commuters should be reimbursed for the higher transport fares that they paid when oil prices were high, and if the transport companies were making ‘a lot of profits’.

Mr Lim urged his audience to look at the ‘big picture’. He said: ‘We don’t want the companies to be making excessive profits, but that’s different from saying that they cannot make profits at all.’

For instance, over the next three years, it will cost between $500 million and $600 million to bring in new buses. ‘Therefore the companies need to build up their reserves to purchase these…and maintain standards.’

The minister also explained that while the economy may be slowing down, the prices of products and services will not necessarily fall in tandem.

One resident asked if the cost of living would return to the levels seen prior to the spiralling oil prices this year.

Mr Lim noted that the overall price level - as measured by the consumer price index - may fall, as oil prices drop. ‘But does it mean that all prices will fall? No, because different products and services will have different supply and demand.’

As an example, he cited egg prices, which went up after eggs from China were found to contain melamine and buyers turned to Malaysia. But news reports said there is also a shortage in Malaysia because the high price of corn early this year led to farmers rearing fewer chicks.

Mr Lim also explained that subsidising fares or giving free bus rides will only mean taxpayers picking up the tab.

It costs $1.2 billion a year to run the buses and trains. This is equivalent to a 1.5 percentage point increase in the goods and services tax.

‘So, now it is 7 per cent. Do you want the GST to go up to 8.5 per cent to run a completely free bus and train system?’

The minister’s assurance that the Government would try to contain transport costs gave some comfort to Mr Teo, a grassroots leader.

‘I know it’s very hard for them to reduce fares, so I just hope that they will not increase them again. The fares now are already so high. If they go up, the poor will be very badly affected.’

When Raymond Lim cut pay instead of retrenching staff
THE year was 1998, and the region was in the grip of the Asian financial crisis.
Mr Raymond Lim was then leading an investment team in ABN Amro Asia Securities, as its chief economist for Asia. To cut costs, his boss in Hong Kong asked him to fire workers in Singapore.

Recounted Mr Lim: ‘I discussed with my team…why not everyone take a wage cut?’

The savings accrued this way would have been tantamount to a retrenched worker’s salary. His boss found it an unusual measure, but allowed him to go ahead, as he was running the division.

In today’s tough times, ‘that’s the philosophy we want’, said Mr Lim, now Transport Minister. ‘Instead of retrenching as a first resort, try to bring down the costs first, and we’ll try to help you.’

He was replying to a question by a resident on the Government’s call to companies to let foreign workers go first when downsizing. The resident asked if this should also apply to foreign managers.

Mr Lim said that if retrenching is inevitable, it makes sense to retrench foreign workers first, so that when companies expand their headcount again, they will not have to fight for Singapore workers.

But ultimately, it depends on what an individual company needs. ‘If the foreigner’s skill sets are important, then you may have to keep foreign workers.’

LI XUEYING

Source : Straits Times - 22 Dec 2008

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Firms shelve supply of 1,000 Singapore new apartments

Firms shelve supply of 1,000 Singapore new apartments

Project development deferred; en bloc properties return to rental market

By ARTHUR SIM

(SINGAPORE) At least 1,000 projected new apartment units can be expected to be withdrawn from immediate supply in Singapore’s property market, as properties that were sold en bloc in recent years are put back on the market for rental.

Still standing: Lucky Tower has been leased to a master tenant that intends to sub-let the 91 units
The latest of these is Lucky Tower at Grange Road which was bought by City Developments Ltd (CDL) in May 2006.

A CDL spokesman said that the entire development of 91 units has been leased to a master tenant that intends to sub-let the units.

According to data complied by Savills Singapore, Lucky Tower was expected to be redeveloped into a 178-unit condominium. However, with redevelopment pushed back, these units are not expected to come on to the market anytime soon.

Another development, the 192-unit The Grangeford at Leonie Hill, acquired by OUE in 2007, has also been put back on the rental market.

OUE is controlled by the Lippo Group and Malaysian tycoon Ananda Krishnan. Lippo Realty executive director Thio Gim Hock said that approximately 70 per cent of the units have already been leased, mainly to expatriates.

On why it decided to defer redevelopment, Mr Thio said: ‘The market does not look good for this year or the next.’

It is understood that asking rents for The Grangeford start at about $3,500 for 1,110 square foot two-bedroom units and about $4,500 for a 1,700 sq ft three-bedroom unit.

The Pontiac Land Group has also started to lease out Pin Tjoe Court, which it acquired in September 2006. Senior vice-president (residential leasing) William Teh said that it expects to redevelop the site next year. ‘Till then, we are offering very short-term leases, and this is not representative of typical rental in the market,’ he added.

Frasers Centrepoint said that Flamingo Valley, which it acquired in early 2007, has been put on the rental market with close to 60 per cent of the 185 units leased out.

Other en bloc developments back on the rental market include Furama Towers, Fairways Condominium, Sophia Court, and Lincoln Lodge.

The increasing number of en bloc sites put back on the rental market is expected to further depress already weakening rentals.

Referring to this ‘hidden leasing supply’, Japanese investment house Nomura said: ‘The move by developers to return en bloc units back to the leasing market to cover to a degree of the holding costs is not unanticipated.’

In the case of Grangeford, assuming a gross rent of $3.40 psf for the 396,483 sq ft apartment block, Nomura estimates that it could secure net income of $14.6 million, equating to a 2.3 per cent yield over its $625 million acquisition price, ‘providing some relief to covering the site’s holding costs’.

Regardless of ‘hidden leasing supply’, rentals are already expected to fall. Still, Knight Frank director (research and consultancy) Nicholas Mak believes that the ‘hidden supply’ of leasing units will not make much of a dent on the rental market. For starters, he notes, many of these en bloc developments have already reached a state of disrepair.

Pointing out that the 108-unit Fairways is about 10 per cent leased, he says that many of the units have been ’stripped bare’.

He also noted that these units have short leases and tenants may be given only one-month’s notice to vacate.

Another consequence of deferred en bloc redevelopment is the impact this has on future supply.

Savills Singapore estimates that based on the en bloc deals between 2005 and 2007, over 23,000 new units could be added to the market.

But, as Nomura notes, supply has been increasingly pushed to 2012. As at the third quarter of this year, it found that some 16,762 units are scheduled for completion in 2012, versus the previous quarter’s estimate of 14,179 units.

Based on an analysis of official data since Q499, it also found that actual completions lagged behind forecast completions.

The Urban Redevelopment Authority (URA) has also clarified that while developments are deemed ‘under construction’ in its database, this does not necessarily mean construction has begun.

A spokesman for URA said that it considers a project to be ‘under construction’ once the Building and Construction Authority records indicate that a project has been issued a permit to commence structural works.

As at Q308, there are 10,007 units under construction. URA said: ‘As developers do not have to inform the government of actual ground-breaking after obtaining the permit to commence structural works, URA does not have information on the number of units, expected to be completed in 2009, which have actually broken ground.’

However, it added that it understands that actual construction for a project typically begins within 1-3 months after the developer obtains the permit to commence structural works for the project.

The number of developments that could be deferred will remain unknown. CB Richard Ellis executive director Jeremy Lake pointed out: ‘Even if the property has been demolished, a meaningful number of projects will be delayed as construction costs are expected to fall over the next 18 months.’

Source : Business Times - 22 Dec 2008

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Banks brace for tough year ahead - Singapore

Banks brace for tough year ahead - Singapore

Lending set to contract on tighter credit standards

By CONRAD TAN

(SINGAPORE) As 2008 draws to a close, banks here are bracing themselves for what may be the toughest year for the Singapore banking industry since at least the Asian financial crisis.

Having suffered heavy losses from soured investments and volatile financial markets this year, banks expect 2009 to bring even more bad tidings as the damage spreads through the economy: job losses, bad debts, bankruptcies and falling demand for loans.

While those who responded to BT’s questions sounded cautiously upbeat, all banks are buckling up for a rough ride ahead.

And with good reason: Few people in the industry claim to know just how bad things could get.

‘The global financial crisis has carried us into uncharted territory over the past few months and is unprecedented in its scale and impact,’ said David Conner, chief executive of OCBC Bank. ‘The next few quarters are expected to be challenging for individuals and businesses around the world.’

Banks insist that they are still lending to new customers, though standards have been tightened significantly. ‘We have become much more cautious and conservative in approving new loans,’ said Goh Chong Theng, Rabobank International’s Singapore general manager.

‘The entire property market in Singapore and the region is feeling the impact of low credit appetites and slow demand. This will hurt banking profits in 2009 for all banks operating in the region,’ he said.

Many banks, including DBS Group, Citigroup, Credit Suisse and HSBC have recently announced job cuts; even more have been quietly shedding staff here.

Still, the biggest foreign banks said that they would continue to invest in this part of the world. That’s no coincidence: for banks with an international footprint, strong profits in Asia have limited the damage to their overall earnings from massive losses in the US and Europe.

At Citigroup, which has suffered one of its most tumultuous years ever, long-term plans for growth here remain intact, said Adam Rahman, Citi’s Singapore corporate affairs head. ‘Our business in Singapore remains a regional centre for management and operations for Citi globally. Our new office premises in Changi Business Park is on track, with the first building expected to be completed in 2009 and the second in 2010.’

‘We are also continuing to extend our distribution footprint across the island with new retail branches.’

Swiss banks UBS and Credit Suisse, which announced worldwide job cuts earlier this year, both said that they would continue to hire selectively here.

‘The short-term economic environment is very challenging across the region, but the medium- to long-term economic outlook for Asia-Pacific remains attractive and we will continue to invest selectively in our businesses,’ said Gerald Chan, UBS Singapore country head and chief executive. ‘Asia-Pacific, and specifically Singapore, continues to be a key growth market for UBS.’

Lito Camacho, Asia-Pacific vice-chairman and Singapore country head for Credit Suisse, said that the bank’s expansion here would go on. ‘Singapore continues to be a very important banking centre for Credit Suisse and we will continue to make investments here.’

Amid the belt-tightening and extra precautions throughout the industry, some banks see a chance to win a bigger share of the highly competitive banking market here.

‘While exercising caution, we are cognisant that there are still business opportunities available in such volatile times,’ said Pollie Sim, country head for Maybank Singapore.

Nomura’s presence here will actually be strengthened after the Japanese financial group bought the Asian operations of bankrupt US investment bank Lehman Brothers in September, said Nomura Singapore president Seiichiro Miyaoka. ‘We would like to beef up our client-facing business as a result of the integration of ex-Lehman and Nomura.’

But a major worry is that Asia’s resilience may not last into next year.

Jimmy Koh, head of treasury research at United Overseas Bank (UOB), warned that the full impact of the financial crisis on Asian economies has yet to be felt. ‘We have not even walked into the storm,’ he said. ‘We’ll only have a sense of how bad the situation is as we enter 2009.’

Singapore’s economy could shrink by up to 2.5 per cent next year, said Standard Chartered Bank economist Alvin Liew.

Significantly, Stanchart’s analysts also expect overall bank lending in Singapore to contract by 2 per cent next year as banks tighten credit standards and businesses and people cut back on borrowing.

Kenneth Ng, a CIMB analyst who covers the Singapore banks, told BT that he expects a difficult year ahead for DBS, OCBC and UOB. In 2009, ‘we’re expecting banks’ earnings to come down 30 per cent, driven by higher loan-loss provisions’, he said.

‘We’re expecting progressively more bad news as the distress from the financial sector spills into the real economy.’

Even banks that have so far been spared the worst of the financial crisis are preparing for difficult times ahead. ‘We have implemented a hiring freeze in preparation for a tough 2009,’ said Rabobank’s Mr Goh. ‘We are also watching our capital allocations and costs religiously.’

Source : Business Times - 22 Dec 2008

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Mindy Yong

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