Property cycles hard to predict

“We will keep our eyes on the ball and use all the tools at our disposal, but in a calibrated fashion,” he said. The government will probably not use 'macro tools' to manage property cycles, such as changing interest rates or exchange rates, because these rates have many other effects such as on businesses as well, said Tharman in his concluding remarks at the forum. But there are other options. These include tweaking rules on credit, adjusting land supply and — in extreme situations — amending tax policies, he said.

Two months ago, Singapore introduced measures to help cool the property market, including removing the interest absorption payment scheme and significantly increasing land supply. On Monday, the Monetary Authority of Singapore also highlighted the possibility that additional cooling measures may be needed if there is a renewed surge in property speculation.

“We do want to manage the property cycle as best we can, prevent boom and bust,” said Tharman, adding that this is not easy as it is difficult to anticipate Singapore's property needs four or five years in advance. As for broader economic cycles, Singapore will always be exposed to ups and downs beyond its control, he said.

“As a city, and a global city at that, we will always be subject to global cycles in specific industries as well as the global macro cycle,” he said. The important thing is to achieve good average growth over the cycle, rather than go for a lower growth path to avoid volatility, said Tharman. “If you try to dampen all volatility, you usually end up with a lower average as well.”

The unusually strong growth that Singapore enjoyed in 2006 and 2007 helped pull the average growth across the most recent business cycle up to 5 percent, he added. Without this, wage growth in particular would have been weak.

So Singapore should opt for a path of good growth in incomes, but prepare its businesses and workers well for occasional shocks and respond quickly when they come, said Tharman.

Singapore has “not come out too badly” in the downturn in terms of its ability to buffer companies and employees and to prepare for recovery, he said. But for its next growth phase, the country must undergo a 'step change'. What are needed are higher skills, higher productivity and a higher level of expertise across the board.

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