Finally, Singapore as slipped into a technical recession. What this means is that the output (export) of Singapore had been declining in the last 2 quarters. At the same time, inflation in Singapore has reached a 26 year peak, where consumer prices will rise between 6 to 7 per cent this year. So how does a recession affect you?

Well, from a layman’s perspective, less outgoing goods mean that more goods are being stuck in Singapore. More goods being stuck for too long means that the companies will try to reduce the amount of output, which may lead to the layoff of staff that they do not need. Laying off of staff means that employment rate goes down and the number of jobless people goes up. This in turn affects the spending power of people affected, i.e. people will spend less. People spending less means that there will be lesser business for companies out there, which means they will be struggling to keep afloat and will hence lay off more people to survive. Eventually, everyone gets laid laid off and all businesses will close because no one is buying anything.

Erm, except essentials, of course.

So, how does a recession lead to an inflation? Well, the cost of everything starts going up in order to cope with the recession and hence people will have to pay more to get what they want. Eventually people will stop buying things (especially when they start being laid off) and if this happens on a wide scale, deflation may happen. This is a time when people who are desperate for cash will start selling their stuffs at a low price in order to get some cash to survive. While it is unlikely that essentials or goods will ever go into a deflation, things like used cars and property may.

There are of course, some businesses that will still survive and that’s in the area of needs. Education and food are just some of them. So, even in a recession, all’s not gone yet – especially if you have sufficient spending power. This may be a good time for you to start a business especially when it does not require extensive purchase of goods.

Judging from the sentiments of what’s happening recently, Singaporeans don’t seem to be feeling the recession yet – especially when we just hit a record high of the number of people signing up for travel packages and the turnout at the recent F1 races. Perhaps we will know the true picture towards the end of the year, when bonuses are near rock bottom and when people are unable to fulfill their financial commitments, especially through credit card spendings.

S’pore slips into recession

  • MTI lowers 2008 forecast to 3%, from earlier 4-5%
  • MAS moves to ease monetary policy
  • Inflation has peaked

    By Fiona Chan

    SINGAPORE’S economy has slid into its first technical recession since 2002, as a slump in exports pushed quarterly growth into negative territory for the second quarter in a row.

    The economy shrank by a worse-than-expected 0.5 per cent in the third quarter compared to the same period last year, according to estimates from the Ministry of Trade and Industry (MTI) released on Friday morning.

    MTI has also revised its full-year growth forecast for the second time this year, lowering it to ‘around 3 per cent’ from 4 to 5 per cent previously. This would make it the weakest pace in seven years.

    Recognising growth concerns, the Monetary Authority of Singapore also changed its policy stance to zero appreciation of the Singapore dollar, reversing the gradual appreciation policy it has adopted since 2003.

    On a quarterly basis, third-quarter GDP contracted 6.3 per cent from the second quarter, on top of a 5.7 per cent decline in the previous three months. A technical recession is generally defined as two consecutive quarters of decline.

    Manufacturing led the slowdown again this time around, weighed down by a poor performance in the biomedical sciences segment. It was also hit by weakened global demand for exports as the United States-triggered financial crisis spreads around the world.

    The sector shrank by 11.5 per cent in the third quarter, after declining 4.9 per cent in the previous quarter.

    Growth in construction and services also slowed. Construction, in particular, saw its pace of expansion halved to single-digit growth, as projects were delayed by the construction squeeze, said MTI.

    Services, touted as a key driver of growth this year, is likely to take a hit as well as financial services falters in the wake of the global credit crunch.

    Most economists expect the economy to grow even more slowly next year, with the chance of a technical recession turning into a ‘real’ one.

    ‘With external conditions deteriorating and the lack of domestic demand support, we expect Singapore to register no growth next year… with a muted recovery, if at all, expected only in the second half of next year at the earliest,’ said Morgan Stanley economists in a report.

    Inflation peaks
    Inflation, which reached a 26-year high earlier this year, has peaked, said MAS. Consumer prices will rise between 6 per cent and 7 per cent this year, and gains will ease to between 2.5 per cent and 3.5 per cent in 2009, it predicted.

    ‘Against the backdrop of a weakening external economic environment and continuing stresses in global financial markets, the growth of the Singapore economy is expected to remain below potential in the period ahead,’ said MAS.

    ‘Inflation is expected to trend down in 2009 as the global and domestic economies slow.’

    Source: Straits Times Interactive,

  • Article extracted on 10th October 2008

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