How it started

image003

 

subprime

subprime_tog1b_416

images (1)

 

pinnacle

 

_44217521_growth_subprime_203gr

us-house-prices-2014-momentum

647-20081013-ECONOMY-subprime.large_.prod_affiliate.91

Subprime crisis explainer

 

 

Impact on Singapore and Singapore’s Response

 

tkl03

PICT8729

 

156108_309047372534052_2015681411_n

 

 

 

Banking

Local banks had minimum exposure

Isolated cases of toxic structured notes sold by local banks caused protest and embarrassment

Eroded confidence cause shares of local banks to plummet 50%

Lending contracted 16%

SMEs turned away as risk aversion increased

Screen Shot 2014-09-09 at 12.37.08 AM

singapore-interbank-rate

 

Trade

Screen Shot 2014-09-09 at 12.10.54 AM

FDI

Foreign direct investment, net inflows (US$)

The value for Foreign direct investment, net inflows (BoP, current US$) in Singapore was $64,003,450,000 as of 2011. Over the past 41 years, the value for this indicator has fluctuated between $64,003,450,000 in 2011 and $93,000,000 in 1970.

Definition: Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. This series shows net inflows (new investment inflows less disinvestment) in the reporting economy from foreign investors. Data are in current U.S. dollars.

Screen Shot 2014-09-09 at 12.19.11 AM

2001 $15,086,710,000
2002 $6,401,974,000
2003 $11,941,340,000
2004 $21,026,040,000
2005 $18,090,330,000
2006 $36,700,160,000
2007 $46,929,880,000
2008 $11,797,770,000
2009 $24,417,560,000
2010 $48,636,740,000
2011 $64,003,450,000

Unemployment

Resilience could be attributed to swift fiscal measures and ongoing constructions at the MBFC, MBS, hotels and services for the IR.

Screen Shot 2014-09-09 at 1.01.03 AM

GDP

Export heavy industries like electronics and manufacturing were worst hit

 

Screen Shot 2014-09-09 at 1.11.35 AMScreen Shot 2014-09-09 at 1.11.52 AMScreen Shot 2014-09-09 at 1.12.11 AMScreen Shot 2014-09-09 at 1.12.26 AMScreen Shot 2014-09-09 at 1.12.45 AM

 

MEANWHILE IN THE EURO ZONE…..ANOTHER CRISIS WAS BREWING WHICH PEAKED IN 2012

The European debt crisis refers to Europe’s inability to pay the debts it built up in recent decades. The European debt crisis grew out of the U.S. financial crisis of 2008-2009. A slowing global economy exposed the unsustainable financial policies of certain eurozone countries.

The eurozone is made up of 17 European countries that use the euro, including France, Germany, Spain, and Ireland. Several countries in the eurozone have borrowed and spent too much since the global recession began, causing them to lose control of their finances.

The European debt crisis can be traced back to October 2009, when Greece’s new government admitted the budget deficit would be double the previous government’s estimate, hitting 12% GDP. After years of uncontrolled spending and nonexistent fiscal reforms, Greece was one of the first countries to buckle under the economic strain.

It was also the first eurozone country to take a multi-billion pound bailout from other European countries (followed by Portugal and Ireland).

Fast-forward and Greece is still in a recession, more than a quarter of adults are unemployed, and the future looks bleak. Things don’t look any better in Spain, where the jobless rate is at 26%. The jobless rate in the eurozone as a whole is at 12%; the highest level since the euro was created in 1999.

01greekdebt

 

1221eurozone1

 

If Greece fails to pay what it owes, the country will go bankrupt and most likely become the first country to leave the euro currency. Greece’s departure could open a floodgate with other countries following suit; thereby weakening Europe’s economic clout.

Today, the European debt crisis is on the brink of pulling the entire eurozone into a recession; dragging the global economy down with it. Ten European countries have already slipped into a recession and three more have needed to be bailed out in order to avoid going into default.

In March 2013, the government in Cyprus raided personal bank accounts to bail out the country’s financial system; setting a dangerous precedent. While politicians are saying this is a one-time event, one has to wonder if this tactic won’t be used again elsewhere. It’s not as if there isn’t just cause.

While Germany has been the economic engine for the eurozone, its slowing economy could join the rest of the region in recession. Thanks to the deep recessions in the other eurozone countries and austerity programs, Germany’s ability to carry the region is in serious jeopardy.

Germany’s central bank, the Deutsche Bundesbank, is predicting growth of just 0.4% in 2013; down from a June 2012 forecast of 1.6%. The Bundesbank also expects the jobless rate to hit 7.2% in 2013, up from 6.8% in 2012.

That said, there is more to the European debt crisis than just debt. Despite a shared currency, the eurozone is made up of different countries with vastly different cultures, histories, philosophies, and economies. And those differences illustrate just how difficult it is for disparate countries to work together with one unified voice.

In fact, the head of the Bank of England referred to the European debt crisis as “the most serious financial crisis at least since the 1930s, if not ever.”

 

Eurozone crisis is main risk for Singapore: MAS

 
 Philippine Daily Inquirer/Asia News Network
Tuesday, Aug 07, 2012

SINGAPORE – The eurozone crisis is the main risk facing Singapore’s economy and financial system, the central bank said Wednesday, warning the nation to brace for “a more adverse turn of events”.

Ravi Menon, managing director of the Monetary Authority of Singapore, said any sharp deterioration in the eurozone, the city-state’s biggest export market, could hurt economic growth and lead to a drying up of bank credit.

“The key risk facing the Singapore economy and financial system is the ongoing crisis in the eurozone,” Menon said at a news conference.

“While eurozone governments have taken important steps to deal with the crisis, we must be prepared for a more adverse turn of events.”

Turmoil in the eurozone continued to cast a shadow across global financial markets Wednesday after Spanish borrowing prices hit a new historic high amid fears that Madrid will soon need a full-blown bailout.

Singapore could see a drying up of bank credit similar to the aftermath of the collapse of US bank Lehman Brothers in 2008 that hammered global markets, Menon said.

“Already, we have seen some retraction in eurozone banks’ trade finance activities in Asia, but local and global banks have stepped in to fill the void,” he said.

Singapore, an international financial centre, should brace for “excessive inflows as well as outflows” of capital, which could impact on the Singapore dollar, he added.

Financial institutions operating in Singapore have “limited direct exposure to peripheral Europe”, Menon said but warned that “if the crisis spreads to core Europe, contagion could be larger”.

“Our financial system is sound and we should be able to weather the storm,” he added.

Singapore’s economy is on track to expand between 1.0 and 3.0 percent this year, down from 4.9 percent growth last year, he said.

However, economic growth could dip below 1.0 percent if the situation in the eurozone escalates, China’s economy slows down drastically and the United States falls into a recession, he added.

Singapore’s trade with major trading partners

sg trade

Singapore’s response to the Euro Zone Crisis

Sustaining Economic Growth

B.3. Our first task is to upgrade and restructure our economy, so that we can grow by becoming more productive, and can rely less on expanding our workforce. We embarked on this new direction two years ago. Our aim is to achieve productivity growth of 2% to 3% per year, or in total 30% productivity growth over a decade. It is a challenging target.

B.4. We have made some progress in the last two years, but mainly because the economy rebounded strongly in 2010 after the downturn, with output growing much faster than the workforce. The core task of restructuring businesses and industries remains and must be our key economic priority.

B.5. We will therefore take important further steps in this Budget to promote this necessary restructuring. We have to reduce our dependence on foreign labour, and do much more to build an economy driven by higher skills, innovation and productivity, as the basis for achieving higher incomes for Singaporeans.

B.6. Foreign workers have in fact been indispensable to many of our industries. Our businesses have complemented a core Singaporean workforce with foreign employees at all skill levels. It has enabled them to stay competitive internationally and to service their customers and markets. In particular, many smaller and newer firms would not have been able to survive and grow without access to skilled foreign workers.

B.7. Singaporeans workers too have benefited, and not just businesses, from the presence of foreign workers here. As the number of foreign workers rose in recent years, so did demand for local workers. Many new jobs have thus been created for Singaporeans. Incomes have gone up. The median Singapore household saw income per household member grow by 17% in the past five years, after adjusting for inflation. The lower end has not lost out either. Singaporeans at the 20th percentile of households experienced 14% real growth in income per household member – both because their individual wages have gone up, and also because more members of the household obtained jobs (see Chart 1)2.

Chart1:Growth of Singaporean Household Incomes Per Member

B.8. Some Singaporeans at the lowest rungs of the income ladder, especially cleaners, have not seen this lift in incomes. We take that seriously, and are tackling the problem. But the broader picture of the last five years has been that most Singaporean families have enjoyed significant real income growth.

B.9. However, our increasing dependence on foreign workers is not sustainable. It will test the limits of our space and infrastructure, despite our efforts to build more housing and expand our public transport system. A continued rapid infusion of foreign workers will also inevitably affect the Singaporean character of our society. There is also an important economic reason: the easy availability of foreign labour will reduce the incentives for our companies to upgrade, design better jobs and raise productivity.

B.10. We must therefore take further measures to reduce the inflow of foreign workers, and help our businesses adapt to the permanent reality of a tight labour market.

B.11. None of this will be easy. Many companies, including growth enterprises with strong demand for their services, are finding it difficult to recruit local workers. While many of them may be able to adapt and grow in less labour-intensive ways, others may choose to downsize, switch to new business lines or move abroad. We must allow market forces to restructure our economy, so that efficient enterprises have more room to grow. The Government cannot decide which companies should succeed or phase out. But we will provide broad-based support to help as many businesses as possible to retain their roots in Singapore and grow, and help Singaporean workers who may be displaced to find new jobs.

B.12. Our SMEs are in fact the most affected by this challenge. The Government will extend special help to them, so they can reorganise and upgrade their operations, attract Singaporeans to work with them, and be viable and vibrant contributors to our economy years from now.

B.13. We have in fact seen major improvements in productivity in each phase of our economic development. In 1980, it took 27 workers to produce $1 million worth of output (in today’s prices). Today, it takes only 10 workers to produce the same value of output. This is why the median Singaporean worker now earns three times as much as 30 years ago, after taking inflation into account3.

B.14. However, while the economic growth in these past decades has relied equally on productivity improvements and increases in the labour force, in future, productivity must be the key driver of our growth. In terms of productivity, we still are some distance behind the most advanced economies. Today, the same value of output produced by 10 workers in Singapore takes only 7 workers to produce in the US or 6 in Switzerland4.

B.15. If we succeed in transforming our economy and achieving productivity growth of 2% to 3% per year over this decade, we should be able to sustain economic growth at 3% to 5%, and build competitive enterprises. It is, more importantly, the only way in which our workers can enjoy higher incomes and our society can be strong and cohesive.

So….what kind of questions can you expect from this kind of a backdrop??

And what kind of essays will help you have an edge over others?

Refer to handout.