Recession Is Price of Misreading Inflation, Singapore Minister Says

(Bloomberg) — Easing tensions between China and the US won’t assure the world of peace, but it will definitely make it a safer place, according to Singapore’s Senior Minister Tharman Shanmugaratnam.

Even with ties restored, there would be constant friction between the world’s two biggest economies, Tharman said in a panel discussion at the Bloomberg New Economy Forum in Singapore on Tuesday. 

“But it’s much safer than a world that is decoupled,” he said, adding that the thought of the US and China severing ties is “profoundly dangerous.”

His comments came after early signs of thawing relations between the US and China on Monday, when President Joe Biden and President Xi Jinping met at the Group of 20 summit in Bali, Indonesia — the first in-person meeting between the leaders of the two countries since the pandemic began.

The meeting was a heartening development for many Asian nations faced with the difficult choice of siding with one nation or the other amid geopolitical disputes spawned by America’s overt backing of Taiwan, and since Russia’s war in Ukraine. Beijing is Singapore’s top goods trading partner, while Washington the third-biggest as of 2021.

“I think there’s a way forward,” Tharman said in a conversation with Stephanie Flanders, head of economics and government at Bloomberg News, during an NEF panel discussion Tuesday on challenges confronting the world. “We haven’t reached the precipice yet.”

Tharman termed the Biden-Xi meeting “a very important new start,” and one that will go a long way in getting economic “growth going” in a world just recovering from the Covid-19 pandemic and confronting newer challenges in the form of high inflation. 

Though the US and China are economically dependent on each other, the case of Europe and Russia has shown that a high level of dependence between nations does not mean clashes don’t occur, said Japan’s trade minister Yasutoshi Nishimura, who was also on the panel.

“We already know that it’s sort of a fantasy to believe economic dependency prevents conflict,” Nishimura said. “So its incredibly important that the US-China relationship is managed so that things don’t end in conflict.”

‘Wrong Side’

Earlier during the discussion, Tharman said that the current spell of weakness in the global economy was the result of central banks the world over betting “on the wrong side” of inflation last year. 

Recession is the “price we pay” for misreading inflationary pressures, he said, referring to the slowing global economic growth as a result of continued monetary tightening by policy makers attempting to tame prices. 

The International Monetary Fund last month cut its forecast for global growth next year to 2.7%, far below the 3.8% seen in January. The fund also sees a 25% probability that growth will slow to less than 2%.

The Monetary Authority of Singapore was among the earliest to start tightening policy in October last year, and has since delivered five moves to contain inflation.

The IMF’s calculations also showed that about one-third of the world economy will have at least two consecutive quarters of contraction this year and next, and that the lost output through 2026 will be $4 trillion.

Tharman said the challenge now is to raise investment and sustain it at higher levels for longer. 

“The scale of investment required is one that can only be delivered through public-private partnerships at a level” that’s never been contemplated before, he said at the event organized by Bloomberg Media Group, a division of Bloomberg LP, the parent company of Bloomberg News.

–With assistance from Yoshiaki Nohara, Sanjit Das, Aradhana Aravindan, Cecilia Yap and Erica Yokoyama.