The Rises and Falls of an Empire

The Rises and Falls of an Empire

The Rises and Falls of an Empire: Singapore’s detailed report


The 2007–2008 GFC originated from the US and caused a weakening of the global economy. The exacerbation of this weakening was a result of a much “smaller” world where an economic shock in one part of the world will impact another part of the world almost immediately. Aggregate demand for both consumer and housing market in the US economy fell which led to falling prices and a depressed global economy. Singapore’s vulnerability as a trade reliant economy was exposing as the impacts came in one swift swoop. Firstly, a sharp fall of net exports specifically non-oil exports in manufactured goods. Followed by losses in the equities market especially banking stocks which fell by at least 50%. A slow-down in capital flows and tightening of credit that led to liquidity crunch and a fall in international visitor arrivals which affected the tourism trade.

Technical Recession

The Singapore economy was officially in technical recession in July 2008 from two successive quarters of negative growth and the GFC last for about three quarters. A slow-down of economic activities gave rise to hiring freezes and redundancies from wage pressures due to an uncertain economic outlook. Combined with an uncertain outlook and financial risks, FDIs declined as companies reviewed their forecasts. Singapore-based financial institutions did not require financial assistance as there was minimal exposure to the source of the meltdown. They remained healthy throughout the GFC which must be attributed to the lessons learnt from the Asian Financial Crisis (AFC).

To prevent the loss of jobs and assist with cost-cutting, the Singapore government implemented a Jobs Credit Scheme (as part of a Resilience Package) in January 2009 as part of the Singapore Budget 2009. In addition, future construction projects that have been planned were brought forward to provide employment. Besides that, stimulate consumption and spending for the local economy. The next section will discuss the comparative impacts of SARS and GFC on the Singapore economy.

Comparing Impacts on the Singapore Economy

Studies on extreme events usually failed to make substantial advancements due to a lack of comparative analysis (Popp, 2006). Among others, Cavallo and Noy (2010) and Lin et al. (2013) are some of the few who studied impacts of extreme events by using key indicators. Such as GDP, balance of trade and balance of payments, consumption, consumer price inflation, fiscal accounts, government debt and investment. In a similar vein, Lin et al. (2013) examined the impacts of the indicators by GFC and Lai and Tan (2015) analyzed the impacts of the indicators by SARS.

Here, we’ll compare two extreme events of SARS and GFC based on indicators
from the financial market (Straits Times Index (STI)), macroeconomic [GDP, Consumer
Price Index (CPI), unemployment, Balance of Payments (BOP), Foreign Exchange Rate
(FX) and Port Container Throughput] and property sector (Private Property Volume and
Price Index). These key indicators are selected as these are frequently use as main economic indicators for a small open economy. To provide an accurate indication and close scrutiny of an economy’s progress, quarterly data was use for the analysis.

National income

Being a small open economy, Singapore’s GDP is extremely dependent on regional and global developments. SARS was the principle cause affecting Singapore’s GDP. It fell by about SGD3 billion between the final quarter of 2002 and the second quarter of 2003. This resulted in a revision of GDP growth from 3% to 0.5% by the MTI(Figure 3(a)). Singapore’s GDP recovered from the third quarter of 2003 and experienced quarter on quarter increase (three quarters) to pre-SARS levels. For GFC, Singapore’s GDP fell by SGD8 billion from the final quarter of 2007 through to the first quarter of 2009(Figure 3(b)). The GDP began its recovery from the second quarter of 2009 till end of 2009 and took three quarters before peaking to pre-GFC levels.

SARS caused the GDP to fall by SGD3 billion and the GFC inflicted a greater fall of SGD8 billion in GDP. A larger fall in GDP due to the GFC can be attributed to multiple effects across the wider economy. The economic recovery was restoring comparably at three quarters regardless of the nature of the extreme events.

Consumer price index (inflation) and unemployment level

Being two important macroeconomic indicators, inflation and unemployment reflects the state of an economy’s health. The horizontal double arrow reflects the SARS period in 2003 in Figure 4(a). Inflation fell by about 0.16% during the SARS period but a steady rise (over two quarters) was observe from the third quarter of 2003 to 2004. The unemployment rate followed a downward trend from a high of 5.9% in second quarter of 2003 to the end of the observed time period and took four quarters to recover to pre-SARS levels.

This is consistent with economic expectations were high price levels are correlate with lower unemployment. On the other hand, inflation rose steadily during the GFC and displayed an increasing trend over the observed time period. Similarly, unemployment followed an upward trend rising from 2.1% in the third quarter of 2007 to peak at 5.9%. In the second quarter of 2009 which reflects the economic slow-down and job losses as a result of GFC (Figure 4(b)). Following the unemployment peak, unemployment declined to pre-GFC levels (over two quarters) and reverted to its fluctuating characteristics over the rest of the observed time period.

Inflation and unemployment are inversely relate as per the Phillips curve and this relationship is observing during the extreme event SARS. However, this relationship is not observed during GFC as both inflation and unemployment display rising trends. It is observed and concluded that inflation recovery took two quarters for both SARS and GFC; unemployment recovered in four quarters from the SARS epidemic while GFC took two quarters to return to pre-GFC levels.

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