Dec 3, 2008
S'pore may be worst hit
Its open economy among reasons cited by analysts, after group says US in recession since end-2007
By Alvin Foo
Economists say the technology and electronics sectors may be among those worst hit by the US recession.
SINGAPORE is likely to be the Asian economy that is worst affected by a United States recession, said economists. This is because it is one of the most open economies and has a large manufacturing sector.
They were commenting a day after the National Bureau of Economic Research (NBER) - a private, non-profit research body - concluded that the US has been in recession since December last year.
Unusually, the NBER does not define a recession as two straight quarters of shrinking economic output. Instead, it looks for a decline in economic activity, spread across the economy, and lasting more than a few months. The figures it uses include overall economic output, industrial production, payroll employment, personal incomes, and wholesale and retail trade.
CIMB-GK regional economist Song Seng Wun said that among Asian economies, Singapore and Hong Kong would feel the biggest impact from a US slump, as they are 'the most exposed, most trading-oriented, with the least shelter from domestic consumption'.
He added: 'Singapore also has a slice of manufacturing, unlike Hong Kong. We will get a double whammy from a slump in manufacturing and services.'
DBS Bank chief economist David Carbon said: 'Singapore and Hong Kong are bearing the brunt of the impact in Asia. Singapore is being hit as it is very small and extremely open.'
But he was quick to point out that the impact of a US recession on Asia is less significant than in previous downturns, as 'Asia is now more capable of standing on its own'.
According to IE Singapore, the US is Singapore's third-largest trading partner, with total trade hitting $88.2 billion last year.
Economists identified the technology sector, electronics sector and certain parts of the services sector as those that will be the most severely hit by the US downturn.
OCBC Bank economist Selena Ling said: 'It will be a bumpy ride going ahead for Singapore, especially for manufacturing and export-related industries.
'Moving forward, the services side will feel the impact of a slowdown, as we are talking about job and wage cuts.'
DBS economist Irvin Seah said manufacturing would be the worst hit, with electronics dragging down sectors such as precision engineering.
He added: 'Sentiment-driven sectors such as financial and real estate will be affected by the continued weakness in investor confidence, as will externally oriented services like tourism and hotels and restaurants.'
But Mr Song felt that there could be a silver lining for Singapore in the medium term. He said: 'There is still a lot of money out there looking to capitalise on the downturn. Singapore is seen as an attractive location to set up shop and go on a hunting prowl.'
But for now, it looks like mostly gloom and doom. Economists anticipate the fourth quarter of this year to be the worst for the US, with some predicting as much as a 5 per cent contraction.
Many of them believe the current downturn will be the most severe since the 1981-82 recession.
But some feel that the lower base numbers will provide room for an economic rebound next year.
The best-case scenario? Recovery in the first half of next year, with the end of recession in the second half.
OCBC's Ms Ling said: 'It will probably be a U- or L-shaped recovery. But we are not heading for a Great Depression kind of scenario due to proactive, more aggressive policy responses from the US government.'
However, some were more pessimistic, predicting that this could become the worst economic crisis since World War II.
Mr Jeffrey Frankel, a Harvard University economist who sits on the NBER's committee, told CNBC television: 'This is going to be probably a deep and long recession. It could be the worst post-war recession.'
This piece of news came after the Singapore Purchasing Managers' Index (PMI) reached it's lowest level ever since this index was started. This index is a measure of the manufacturing activities in Singapore. Singapore is highly dependent on exports and since the US is in recession, it is not surprising that the manufacturing sector is in a slump currently as export demand will be weak.
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