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Given these turbulent economic times, it’s not surprising that the Southeast Asian city-state of Singapore is also suffering from a deep recession. Global demand for Singapore’s exports and services has collapsed since the financial crisis has spread to nearly every country on this planet and has emerged as a global economic crisis of unprecedented scale.
Since Singapore’s independence, it has become one of the richest nations worldwide with a modern high-tech and service industry relying on the country’s highly-skilled workforce. The combination of a capitalist society, a strong work ethic and smart government policies have proved extremely successful and have created numerous sources of income for the “Lion-city”. Despite its lack of raw materials, Singapore has become a major exporter and international financial and trade hub. Next to the pro-business and pro-export policy of the government, the excellent infrastructure has supported the country’s economic rise. The financial services and high-tech industry in addition to oil refining and re-exportation of imported and up-graded goods have been the foundation for Singapore’s economic success. However, Singapore’s strength in finance and international trade turned out to expose Singapore to the effects of the global economic crisis. (check out: https://economatters.wordpress.com/2009/01/10/grim-outlook-for-the-container-shipping-industry/) Container lines are struggling with costly over-capacities and are slashing some routes resulting in a major setback for the world’s busiest port. When international trade suffers, so does Singapore’s economy.
As the Singaporean government has already admitted, the city-state is in it’s deepest recession ever. The GDP is expected to contract by 5% this year. Nevertheless, the country has an abundance of financial resources. The Finance Minister announced a $13.6 billion (20.5 billion Singapore dollars) economic stimulus package to ease the effect of the recession on the people and revive the economy. Considering the size of the stimulus, this is a bold and determined step. The money should be spent to preserve jobs by subsidizing wages, guaranteeing bank loans to help businesses and families in trouble. Employers receive help to pay part of the salaries and benefit from tax reductions in order to ensure that as many people as possible keep their jobs and incomes. To stimulate banks to lend money, the government shares the risk of bank lending and jumps in when a business fails to pay back. Huge investments in education healthcare and infrastructure are part of the package, too. The advanced subway system is to be expanded, public housing projects receive more money, more roads and parks will be built.
Apart from these countermeasures, Singapore might also weaken its currency to tackle the recession. This should strengthen the city-state’s export sector. Besides, this measure could halt the fall in consumer prices and reduce deflation risks. A large share of the consumer goods sold in Singapore are previously imported. Therefore, a possible devaluation of the Singapore dollar would stop the price fall by making imports more expensive.
Despite the grim outlook for the this year, Singapore’s future is bright. The government has invested billions of dollars into biotech and chemicals as well as telecommunications which should ensure the continuation of the economic success story. Singapore will overcome this crisis as it managed the Asian crisis in the 1990s and the outbreak of SARS. Pfizer and Lanxess are just two examples of foreign companies that have invested hundreds of millions into new research & development facilities. Pharmaceuticals already contribute decisively to Singapore’s GDP. However, the fast-growing biotech sector is still in its infancy and requires massive investments. In the medium term, especially biotech could become a big money-spinner. Singapore attracts many bright-minds from abroad. Scientists from foreign countries are fascinated by the vast research opportunities. The country’s innovative high-tech industry is making strides towards surpassing other Asian high-tech centers in Japan, Taiwan and South Korea.
The bottom line is that Singapore was hit by the crisis at the wrong point in time since it proved to be still too dependent on the financial sector while prospective sunrise industries are not yet ready to fill the gap.
If you’re interested in how Singapore manages this crisis and prepares for the future, you will be able to get first-hand information right here. In April, I’ll travel to Singapore and report daily about this intriguing global city at the tip of the Malay Peninsula.