Chan Jia Hui
Commuters on a MRT Train
So, the verdict is out. The credit rating agency Standard and Poor’s has downgraded America’s debt rating from AAA to AA+, albeit with a negative outlook. Actually, the verdict did not come as a total surprise given the country’s budget deficit and national debt.
Investors’ confidence in the world’s largest economy has taken a hit, prompting the sell-off of shares when the stock market opened today. Europe has also hit troubled waters, with spotlight falling on Italy and Spain, the world’s 7th and 12th largest economy respectively.
Worried investors have been dumping Italian and Spanish bonds, prompting their borrowing costs to rise. The European Central bank has decided to intervene – taking on the debt of both countries by buying their bonds, which were considered too toxic by investors.
Asia is likely to be affected by the debt crisis with exports to the US and Europe is expected to fall, with dampening demands for Asian exports. The major concern now is whether we are heading for a double dip recession or not.
Back home in Singapore, the Public Transport Council (PTC) has just approved 1% transport fare hike. The hike will be in effect from 8th October this year. The reason for the hike, according to PTC chairman Mr Gerard Ee was inflation in recent months.
According to Ee, the decision to grant the hike was also influenced by a positive economic outlook, with the Gross Domestic Product projecting to grow by 5 -7%. However, on hindsight, with the possibility of a double dip recession looming, it could be a case of a decision made too soon by the PTC.
The last time there was a reduction in transport fare was in 2009 where a temporary 3% reduction was imposed due to a recession in our economy brought on by the 2007 – 2008 global financial crisis.
Now with the latest developments in Europe and US, the possibility of a double dip recession is on the cards. The decision to approve the hike, which will kick in from October came too soon.
The question now is whether the authorities should proceed with implementation of the 1% hike from October 8 or watch and wait. A prudent move will be temporarily suspend the hike and monitor current global developments as the US credit rating downgrade and European debt crisis are expected to result in increased market volatility worldwide.
Or a better move is to draw up plans for reduction in transport fare like they did in 2009, if the worst case scenario of a double dip recession sets upon us.
It is always good to plan for a rainy day. They always like to speak of helicopter vision when it comes to planning, and one aspect of helicopter vision is global situational awareness.
Now, the current economic outlook based on the global situation is uncertain. This warrants a suspension of implementation of the fare hike and even making preparations for a fare reduction when economic conditions worsen.
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Photo courtesy of netpower8, Flickr Commons
The worst thing is not losing your job but losing your job and then find everything else increase in prices. This nightmare is not far from being a reality
Someone said it and I agree. Keeping your job is the new wage raise.
Given we’re bound to get into some sort of recession, the first thing companies will do is to cut cost. When it does happen, guess which the employer (esp MNCs) will keep ? The cheaper FT PMET or the expensive LT PMET.
I’ve been down that path and know what it’ll be like.
Get ready for harsh reality and the results of PAP policies.
The hollow statements like Khaw “save for rainy days” & LSS “promote local talents” are coming too little too late.