Current Global Economic Conditions

Despite the strong performance of the Singapore economy so far this year, it is prudent to take note that the outlook for the global economy in the next 6-12 months is quite negative.

In the US, despite the NBER's proclamation that the recession was over in the middle of 2009, the reality appears to be that it is still in the midst of a severe economic contraction, to the extent that some US econ bloggers have called it a 'depression'. Consider the following statement put out by the folks at The Automatic Earth:

"77pc of Americans are now living paycheck to paycheck, in 2007 this figure was 43pc. That's 239 Million people one lost check away from ruin"

At present, there are about 43 million Americans who are on food stamps, and the level of desperation was aptly described by WalMart CEO Bill Simon, as reported by the Wall Street Journal:

"And you need not go further than one of our stores on midnight at the end of the month. And it’s real interesting to watch, about 11 p.m., customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs,and continue to shop and mill about the store until midnight, when electronic — government electronic benefits cards get activated and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher"

Over in Europe, Ireland is now acknowledged as the first country to officially go into a 'double dip', while the German economy has also slowed and the Greek situation is nowhere near resolved.

In Asia, the Japanese are upset with the Chinese buying their bonds, which they feel is a backdoor way of forcing the Bank of Japan to intervene in the FX market to weaken the Yen, so as to divert US Congressional attention away from the Chinese themselves, who are refusing to let the RMB rise. That said, China itself is not in any particularly strong state. In an effort to stave off protectionist measures by the US, Premier Wen Jiabao has stated on Bloomberg that a 20% RMB revaluation would cause social upheaval. Given the amount of excess manufacturing capacity in China and the razor-thin margins of the exporters there, I personally take Mr. Wen's statement as an appeal from a position of weakness rather than strength.

On top of all these, there appears to be a currency war going on globally, as the central banks of all the major economies are trying to avoid a strengthening of their own currencies against the USD, while the US Federal Reserve's intention to weaken the USD is being taken seriously by the markets, as evidenced by the strong performance of gold and silver.

Given the above, I believe it may be prudent to take steps to guard against the systematic currency devaluations that are taking place now. For my fellow Singaporeans, I have this to say: Go easy on the property speculation, there are risks just around the corner. I will write more regarding this in future.