Singapore & HK

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.

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. 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'.

The US is Singapore's third-largest trading partner, with total trade hitting S$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. 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.'

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.'

WHY THE UNITED STATES IS IMPORTANT TO SINGAPORE

The US is Singapore's third-largest trading partner by country.

It is also Singapore's largest foreign investor by country.

The US economy has a vital bearing on investor sentiment here, and affects the financial and real estate sectors.

KEY U.S. RECESSION FACTS

The National Bureau of Economic Research said the US economy entered a recession in December last year, which would make it the longest contraction since 1982. The last time the US was in a recession was in 2001.

If the recession lasts for another five months, it will become the longest since the Great Depression.

The euro region and Japan both fell into a slump in the second quarter of this year, making it the first simultaneous recession in the three regions in the post-war era.

The US economy shrank 0.5 per cent in the third quarter after expanding 2.8 per cent in the previous three months. Some economists predict that the US economy will contract by as much as 5 per cent in the current fourth quarter.

Other economies officially in recession: Singapore, Hong Kong, Japan, New Zealand, Ireland, Italy, Germany and Britain.

Comments: If you want to assess how a country is going to be affected by the US led turmoil, one should consider:

a) the level of open-ness of the economy to trade

b) the level of trade with the US and Europe

c) whether the country has substantive domestic economy (I would classify those countries with at least a 60m population to be able to negate global repercussions)

d) the degree of reliance on FDIs

e) Competitive advantage & shortcomings

f) Responsiveness by government

Then make your own conclusions.

p/s photos: Pace Wu Pei Ci