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Source: www.asiaecon.org |

SINGAPORE EXPERIENCES ITS WORST RECESSION


Singapore, once a major financial hub and a model for rapidly growing economies in Asia, is now experiencing its worst recession in history. Highly dependent on trade with the U.S. and Europe, Singapore was the first Asian country to reach a recession last year as result of the global financial crisis. Since then, Singapore has been struggling with plunging export demands, credit crunch and rapidly increasing unemployment, all of which are unlikely to recover by the end of the year.




Singapore, once a major financial hub and a model for rapidly growing economies in Asia, is now experiencing its worst recession in history. Highly dependent on trade with the U.S. and Europe, Singapore was the first Asian country to reach a recession last year as result of the global financial crisis. Since then, Singapore has been struggling with plunging export demands, credit crunch and rapidly increasing unemployment, all of which are unlikely to recover by the end of the year. 

Singapore has enjoyed vibrant growth during the past few years due mainly to its strong infrastructure, highly educated workforce, corruption-free environment, strategic geographical location and well established business and legal framework. In fact, the country enjoyed an astounding annual growth of 7.5% in 2007.

However, Singapore is heavily reliant on exports with total gains averaging around $313 billion in 2007, more than double   the country’s GDP. Its major exports include electronics, chemicals and IT products.  The global financial crisis heavily impacted Singapore’s main export markets- U.S., Japan, and Europe- severely slashing demands for the country’s exports. As a result, the country experienced slower economic growth, credit crunch and massive layoffs.

Singapore’s economic growth in 2008 averaged around 1.5%, a figure much lower than the previously expected 5%. The country recently announced that its economy suffered a 16.9%  economical contraction during the last quarter of 2008,  surpassing the governments expectations earlier this year by 4.4%.

Singapore’s financial companies were severely impacted by the credit crunch. Services slowed 5.3% in the fourth quarter of 2008 compared to the previous period, and the construction industry only grew 13.3% in the last quarter, much less than the previous forecast of 18.6%.

Moreover, Singapore’s unemployment rate is escalating,  reaching levels comparable to those in the 1998 Asian financial crisis. The unemployment rate in the third quarter of 2008 reached 2.2%. Around 4,800 workers were retrenched in the last quarter of 2008 and around 3,300 more are expected to be laid off in the upcoming months. The net employment outlook currently stands at 38% for the January to March period, a 54% drop from the last quarter in 2008. Singapore will have one of the slowest hiring activities in Asia, being one of the only countries in the region where negative hiring expectations are found. This year,  10,000 jobs are expected to be lost and unemployment rate is forecast to reach 5%. 

Among the total jobs lost, two- thirds are expected to be held by foreigners. These job losses might   drive as many as 200,000 foreigners out of Singapore,  resulting in a 3.3% contraction in Singapore’s overall population by 2010.  A decline in population numbers will lead to a contraction in production and private consumption, as the country’s economy has no natural resources of its own, heavily relying instead on the growth generated by its skilled population, a high percentage of which are immigrants.


In light of the current economic downturn, Singapore unveiled   a $13.6 billion stimulus package aimed at cutting taxes and boosting spending. The government hopes to lower corporate taxes, guarantee bank loans, subsidize wages and spend more on infrastructure. These measures are expected to reduce layoffs, increase investments and loans, as well as increase private spending. The country also expects to spend around SG$4.4 billion on infrastructure projects, creating more than 30,000 new jobs mainly in construction, health care and public administration sectors. This is Singapore’s largest stimulus package, reflecting the government’s aggressiveness and determination to tackle the current economic downturn.

The country will tap into its deep foreign reserves in order to partially finance the stimulus package. However, Singapore’s deficit will still amount to around 3.5% of the GDP,  the largest deficit ever experienced by the country. 

While the stimulus might not solve all of Singapore’s economic problems, it is expected to significantly cushion the impacts of the current crisis. This year will continue to be extremely difficult, with the country’s economy predicted to contract 2.8 % , with the first quarter being particularly affected. This will be the country’s sharpest contraction ever. Citigroup economist Kit Wei Zheng,  expects Singapore’s economy to gradually recover in 2010, with GDP growth anticipated to reach 3.8%, a figure much lower than HSBC’s prediction of 5.5%, but significantly higher than Deutsch Bank’s 2.5%. While Singapore’s economy is expected to recover in 2010, growth might not be sufficient and pressure on companies to improve productivity will remain.

 


Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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