27 November 2011

Steering Singapore Out of the Last Recession

At the People's Action Party's convention on 27 November 2011, chairman Khaw Boon Wan presented some insights on the general election six months ago.

One of the several issues that affected the outcome was that, despite steering the economy out of the deepest recession since independence, the PAP was less effective in getting political mileage out of it.

Singapore is a small open economy.  It has one of the highest ratios of trade to GDP in the world.  Its growth and economic prosperity depend greatly on international markets, and are consequently volatile.

According to the Ministry of Trade and Industry (Economic Survey of Singapore, First Quarter 2009), "Fluctuations in real GDP are closely correlated to changes in trade figures, because of Singapore's nature as an externally-oriented and open economy...  [T]rade-related activities have had a bigger impact on the economy since 2001...  [Certain] factors have increased the correlation between trade and overall GDP.  While this stronger correlation has affected Singapore negatively in the downturn, it also increases the likelihood of a faster recovery once global trade recovers."

It is clear that it was the external environment that dragged Singapore into its most severe recession, and later pulled Singapore out of it.

This is not to say that the government did not make a difference.  It did.  But the government — any government other than in an autarky — can only do so much in the face of overwhelming external market forces.

As Minister for Finance Tharman Shanmugaratnam said in his 2009 Budget speech, "[t]he Resilience Package will not get us out of the recession, as long as the global economy continues to contract.  But it will help avert an even sharper downturn, and more lasting damage to the economy."

The strong recovery following the recession reflected the volatile nature of Singapore's small open economy, Prime Minister Lee Hsien Loong said in his May Day 2010 message.  The impact of external market forces is not asymmetrical; it is both positive as well as negative.

Again, according to the Ministry of Trade and Industry (Economic Survey of Singapore, Third Quarter 2011), "[i]n 2012, growth outlook for the global economy is expected to remain subdued.  In the advanced economies, final demand is likely to be restrained by ongoing economic adjustments.  In Asia, growth is expected to ease, notwithstanding some support from resilient domestic demand.  Against this macroeconomic backdrop, Singapore’s externally-oriented sectors such as electronics and wholesale trade will continue to perform poorly.  Growth in the financial services sector is also expected to be lacklustre due to heightened economic uncertainties and financial volatilities.  Nevertheless, there will be modest support to growth from some sectors...

"Taking into account the above factors, MTI expects the Singapore economy to grow by between 1.0 to 3.0 per cent in 2012.  However, there are significant downside risks to growth, in view of the worsening sovereign debt situations in the advanced economies.  Should these economies experience a sharp recession or a full-blown financial crisis, Singapore’s growth in 2012 could come in weaker than expected."

It is clear that it is the external environment again that may drag Singapore into its next recession.

Just as the external environment caused Singapore's last recession, it was by far the principal factor in turning the economy around.


  1. nothing new.. very typical...

    same as comparing with the situations of other countries. if want to justify something we have is world-class (eg: transport), choose a 3rd world country, if want to want to put down some idea (eg: freedom of speech), choose a first world country...

    black also they say, white also they say.. depending on the circumstances...

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