|The challenges presented by the rapidly deteriorating global environment last year led to the strengthening of MAS surveillance and forecasting capabilities. Developments in the regional and G-3 economies, especially in the US and global IT markets, were monitored closely, to assess their impact on the domestic economy. For instance, the Economics Department (ED) kept a close watch over a whole range of indicators in the key IT markets, such as global chip sales, semiconductor prices, and new orders of electronics in the US. A number of detailed studies were carried out to assess the information content of these indicators, and to compare their behaviour across cycles for signals of impending changes in trends and their impact on the domestic economy.
Regional export performances were examined closely to assess the commonality of underlying causes, and to determine whether divergences across countries reflected underlying shifts in industry trends or in the product-market mix. In particular, close attention was paid to developments in Korea and Taiwan, given the similarities in their economic structures to Singapore and their trade linkages with the US economy. Potential risks and opportunities in global financial markets were also identified and assessed against the context of unfolding cyclical developments as well as the underlying structural changes brought about by continuing liberalisation and consolidation in the financial services industry. Throughout the year, MAS continued to contribute actively to regional surveillance initiatives as well as in efforts to strengthen the architecture of the international financial system through participation in regional and international fora such as the Executives Meeting of East Asia-Pacific Central Banks, the Manila Framework, the Asia-Pacific Economic Co-operation group, the Association of Southeast Asian Nations, the Bank for International Settlements, and the Financial Stability Forum (FSF).
Forecasting for the domestic economy also proved particularly challenging in the uncertain environment last year, as previously stable economic relationships broke down. For instance, there was a decoupling of the historical relationship between the rates of decline in global indicators like chip sales and domestic electronics Index of Industrial Production. In particular, the impact of the global electronics downturn on the domestic manufacturing industry turned out greater than expected compared with previous downturns. As a result, MAS had to increase its reliance on short-term and direct cause-effect relationships, as well as gather feedback from industry participants and private sector analysts to better assess developments in the different industries. Another consequence of the heightened uncertainty in the environment was a greater dependence on scenario forecasting, with MAS econometric model, the Monetary Model of Singapore (MMS), used to simulate alternative scenarios so as to anticipate appropriate policy responses. Nevertheless, MAS sectoral and expenditure model frameworks continued to provide a useful macro perspective through which current events could be interpreted. Close study of previous downturns also allowed MAS to compare the differences in how each recession unfolded and provided additional indicators to look out for. This will help pre-empt the knock-on effects following the externally induced shocks and anticipate the levelling off and the recovery of the Singapore economy. Finally, given that the structure of the economy is rapidly evolving, it is important that Singapores statistical databases are constantly reviewed so that they remain relevant and adequate for surveillance and policy analysis. In this context, a working group has been formed under the Economic Monitoring Group - which comprises various government agencies and is co-chaired by MAS and the Ministry of Trade and Industry - to identify any gaps and weaknesses in the existing economic databases.