Lawrence Wong on state of global economies: 'We are not out of the frying pan, but already into another fire'

He was speaking at the Peterson Institute in Washington DC.

Belmont Lay | April 19, 2022, 01:36 PM

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The world is facing a sharper trade-off between economic growth and inflation, as prices creep higher and for longer, Finance Minister Lawrence Wong said in Washington DC, at the Peterson Institute for International Economics on April 18.

His comments on inflation came in his first speech on the global stage since being named the leader of Singapore’s fourth generation team that paves the way for him to become the country’s next prime minister.

Wong was delivering a keynote speech in an annual event that features a series of speeches and discussions by finance ministers and central bankers from around the world.

One challenge after another

Wong said higher inflation has been induced by the pandemic and the war in Ukraine.

He also said that the trend toward globalisation is ebbing, compounding the challenges to growth.

He said: "We are not out of the frying pan, but already into another fire."

"In short, the risk for both growth and inflation are weighed significantly on the downside. It is almost a certainty inflation will be higher for longer," he added.

"And we will therefore face a sharper trade-off between growth and inflation."

Singapore tackling inflation

The Monetary Authority of Singapore has turned its focus on combating inflation, by tightening policy in the middle of April for the third time since October 2021.

This comes after the return of demand following the recent loosening of pandemic curbs in Singapore.

“Clearly there are no easy answers,” Wong said, in a speech that mentioned cushioning the impact of inflation.

“Fiscal policy therefore has to play an important role. Part of this is about being able to respond more quickly with immediate stimulus when needed,” he said.

Investing in infrastructure

Wong also said fiscal policy has to be re-purposed in order to build “inclusive and sustainable growth” by investing in eldercare, healthcare, early childhood development or infrastructure, as well as education.

He noted that state spending has been flipped, where two-thirds of spending that used to go to infrastructure now going to people as benefits.

He said: "Of course it's not possible for any finance minister to sustain such extraordinary levels of spending over extended durations."

"In fact, virtually all advanced economies will emerge from Covid-19 with massive increases in their level of public spending and debt."

Containing China difficult

He also said trying to contain China’s rise will be difficult, ineffective and ultimately destabilising for all, including the United States.

U.S. and China will generate better outcomes for the world by continuing engagement and finding ways to work together on issues that affect everyone, he added.

He said: "Trying to contain China's rise, I think will be very difficult. It will not be effective and will only cause China to redouble its determination to become more self-reliant, to grow its own little giants, and to develop its own indigenous technology."

Limits of globalisation

His speech also mentioned the limits of globalisation and having its logic turned on its head.

Wong said: "But diversification is not decoupling. Will we see a further decoupling of trade, technology or even finance, now that it can be used so effectively in response to war?"

"Will we all start to reduce our dependencies on other countries just in case they turn out to be unfriendly in the future?"

He added: "The hope for some decades was that trade would tamp down on geopolitical rivalry. But we are now seeing another logic at play, with geopolitics having the potential to undermine trade instead."

In U.S. to attend G20, World-Bank IMF meetings

Wong is in the U.S. from April 16 to 25 to meet members of the U.S. administration.

He will also attend the World Bank-IMF Spring Meetings, along with the second finance ministers and Central Bank Governors Meeting (FMCBG) under the 2022 G20 Indonesian Presidency.

Top photo via Peterson Institute