Impact Of Eurozone Crisis On Singapore Economics Essay

Introduction

Impact of Eurozone crisis on Singapore and how it affects other Asia economic systems that Singapore is besides dependent on. The badness of the impact that Eurozone crisis caused to Singapore, and implicit in state of affairss present in other Asia human dynamo economic system that might come up if non decently addressed by their authorities might stultify Singapore ‘s economic system as a consequence of concatenation consequence.

Policies that could straight impact Singapore ‘s economic system and managing of rising prices rates by Singapore ‘s cardinal bank. Government intercession steps that is relevant and effectual to turn to current state of affairs and maintaining rising prices harm to economic system under control.

Export-oriented states such as Singapore face significant economic hazards from the Eurozone crisis.

The current Eurozone crisis began in the twelvemonth 2010, where the universe economic systems are non in the pink of wellness to react to this crisis shortly after the United States subprime crisis. Member states of the European Union such as Greece, Finland, Portugal and Estonia have all along take for granted of the peace, prosperity and societal security that they enjoyed as being portion of the European Union ( Timothy, 2012 ) .

Geoffrey ( 2012 ) recognised the European Union as the universe largest economic system, with its strength of 27 member states and 500 million people and the sum of wealth produced yearly is more than United States or China. This correlates the harm of European crisis to the universe economies is decidedly is a sedate issue that needs to be decently managed by Singapore and the universe alike.

Singapore as a trade goaded state that exports domestic and foreign merchandises to cardinal European states has its GDP ( gross domestic merchandise ) shrunk in the twelvemonth 2011 as compared to twelvemonth 2010. Singapore enjoyed a growing of 14.8 per cent in the twelvemonth 2010 after universe economic systems recovered from the consequence of United States subprime crisis, in the undermentioned twelvemonth Singapore suffered the impact of European states that are confronting debt crisis and has its GDP reduced to 4.9 per cent based on twelvemonth 2005 monetary values. Singapore is unable to keep the above 10 per centum growing that it normally enjoys with its place as a popular trading hub during its flower.

Annual National Income

2010

2011

GDP at Current Market Prices ( $ m )

310,036.80

326,832.40

GDP at 2005 Market Prices ( $ m )

285,658.50

299,624.70

GDP at 2005 Market Prices ( Change in % )

Entire

14.8

4.9

Data beginning from www.mti.gov.sg/researchroom

Although Singapore has so far been buffered from the economic state of affairs in Europe, the prognosis for Singapore growing has been greatly reduced in twelvemonth 2012 due to the emphasis from the Eurozone crisis which could destabilise other European states that Singapore exports to ( Lee, 2012 ) . Singapore exports have faced a worsening demand particularly in consumer electronics, information engineering merchandises, pharmaceuticals and service sector. Singapore economic system is mostly dependent on exports to European states and United State ( Lee, 2012 ) , the weak demand for Singapore exports by other Asia states like China & A ; Malaysia as they alike have suffered from the Eurozone crisis.

Fortunately for Singapore, inter Asia trading is still booming and therefore demand for Singapore merchandises by them have although reduced but still manageable. Gangahar ( 2012 ) mentioned that Asia economic systems need non be excessively worried about the Eurozone crisis, as the indicants suggests that local debt capital markets across Asia are still active despite Greece and Spain debt state of affairss persisted.

Singapore must ever be ready to react to planetary economic challenges, and must non be complacent or narrowly focused merely on the Eurozone crisis. Koo ( 2012 ) highlighted that other Asia powerhouse economic system like Japan is besides confronting high authorities debt to GDP ratios ; Japan ‘s state of affairs is considered the most serious for a developed state but its financial crisis has yet to come up due to Japan ‘s strong abroad debt refund ability and the authorities bond ownership construction. 93 per cent of Japan ‘s authorities bond is held by Nipponese significance that they are invulnerable to planetary economic alterations.

China itself excessively is meeting another type of hazard that are related to the tremendous local authorities debt, China Prime Minister Wen Jiabao has hinted at the hazards associated with this ; stating that “ local authorities debt is still being good managed, but local authoritiess have to stamp down their debt degrees to guard off possible debt-caused hazards ” during his address at the National Financial Work Conference in January 2012 ( Koo, 2012 )

Singapore is non self sustainable without the natural resources that other states possess, it is really vulnerable at the clip of any planetary economic crisis. Singapore being a little state with variegation in industries and speedy to react to external issues is the ground why the current Eurozone crisis did non impact it greatly. By maintaining a alert oculus on the planetary economic systems public presentation and debt state of affairs, merely so Singapore can cook itself in clip to get by with the economic challenges in front.

Question 1: The authorities should play an active function in pull offing an inflationary economic system.

Singapore ‘s rising prices rate has hit 2.8 per cent in the twelvemonth 2010, and tendency higher to 5.2 per centum in twelvemonth 2011. This is mostly contributed by the rush in planetary energy monetary values, internal lodging and transit monetary values in the twelvemonth 2011, as reflected in the Consumer Price Index from Singapore Department of Statistics. Since planetary energy monetary values are non governable by Singapore, the agencies of undertaking internal lodging & A ; transit costs although have to be addressed but non as primary focal point.

The CPI per centum of lodging breach the 9 per centum grade in 2nd one-fourth of twelvemonth 2011 as compared to twelvemonth 2010, and the figure dangerously hovers above 9 per cent and continued into current twelvemonth without any signifier of respite. A crisp addition in transit cost of 5.5 per centum during the first half of twelvemonth 2012 is besides distressing, lodging & A ; transit are considered the basic demands of citizens. Affordability has since become a major issue, as the cost of having a house in Singapore taking a toll on lower income and immature households. Daily costs of transposing have since increased, the luxury of having a auto now in Singapore is out of the range of mean Singaporeans.

Private and public lodging have both recorded high resale monetary values ; this is attributed by foreign and local investors who regard lodging as a feasible signifier of investing in Singapore. Although new authorities subsidised flats does non fall within the appreciation of investors, but nail downing of new authorities flats to the current market resale monetary values have increased the cost of having a new authorities subsidised level for first clip proprietors. Housing makes up for immense 25 per centum of the CPI has become the chief driver of the current high index, accommodations for lodging market has been forecasted and could merely be verified after the release of twelvemonth 2012 CPI informations ( Wang. A and Wood. A 2012 )

Monetary Authority of Singapore besides regarded to as Central bank of Singapore has taken stairss to control on rising prices rates ; this could be seen by the relaxation policy of Singapore currency for the first clip since twelvemonth 2009 by leting Singapore dollar to appreciate and help in cut downing inflationary force per unit areas as reflected in Singapore state study by The Economist Intelligence Unit Limited ( 2012 ) .

Prognosis on strong demand of trade goods goods and current high import monetary values will see rising prices rates bead, with the strength of basicss and the positive balances in the external histories both indicates the possibility of Singapore dollar returning to a higher degree against other Asiatic currencies. This will translates in a decrease of external inflationary force per unit areas that will assist keep Singapore ‘s low rising prices figures, unless the current high oil monetary values continued in an upward tendency though improbable might impact the rising prices rates as highlighted in IHS Global Iraqi National Congress on Singapore Country Intelligence Report.

However MAS has ever focused on Core rising prices, which are oil monetary values, nutrient monetary values and domestic rewards. Which are critical for Singapore economic system, MAS MD Menon.R ( 2012 ) has mentioned in the MAS one-year study 2011/12 that nucleus rising prices figures has surged to 3.1 per centum in the first one-fourth of twelvemonth 2012 and moderated to 2.7 per centum in the 2nd one-fourth twelvemonth. Firstly, planetary oil monetary values has since maintained at about US $ 90 due to the stabilization of political state of affairss in the Middle East. Second, planetary nutrient trade good monetary values have besides dropped by 5.4 per centum in June as compared to January and this translates to take down domestic nutrient rising prices which besides sees the figure dropped by 1.5 per centum to 2.3 per centum in June. Third, domestic rewards has seen a 6 per centum addition last twelvemonth and therefore decreasing the impact of rising prices to people.

MAS current policy of leting Singapore dollar to appreciate is effectual against nucleus rising prices as it serve the intent of controling nucleus rising prices rates, such as cut downing the cost of imported trade goods Menon.R ( 2012 ) . One could experience that MAS is narrowly focused merely on undertaking the nucleus rising prices, and frequently ignored headline rising prices on lodging and transit and go forthing it to market demand controlled fluctuations. Rather than diversifying resources to pull off both nucleus and headline rising prices, and accomplishing less than favorable consequences in the terminal ; we can see that MAS had comparatively done good in pull offing the nucleus rising prices. With the nucleus rising prices rates kept low, Singapore economic system is able to prolong and accomplish slow growing in current turbulent planetary economic systems state of affairs but if the headline rising prices rates continued to increase and still no steps to undertake it will besides make a immense impact on Singapore economic system. No 1 policy solution is suited for all economic state of affairss, invariably detecting and tweaking of policies to remain relevant will profit Singapore economic system, in this case merely short and mid-term policies will be effectual and consequences could be witnessed in a short period of clip versus long term policies which consequences could merely be seen after some clip and during this period Singapore economic system might see negative growing and poses a unsafe internal economic menace.