THE IMPACTS OF THE RECENT U.S. RECESSION ON THE SINGAPORE ECONOMY

Abstract

U.S. entered into recession in July 1990. Output fell in the fourth quarter of 1990 and the first quarter of 1991. As U.S. is the world's leading economic power, any changes in U.S. economic condition will have an impact on the whole world. Indeed it is commonly said that when U.S. sneezes the whole world catches cold. The recent U.S. recession is viewed with great caution by both the Singapore authorities and the public. It is generally believed that Singapore is especially vulnerable to such changes as She has relied extensively on external trade with U.S. and direct foreign investment from U.S. for Her continued economic growth and survival. In support of their view, it can be recalled that the 1982 U.S. recession was a major factor contributing to our economic slowdown in 1985. This study explores the recent U.S. recession and its implications on the Singapore economy. It seeks to answer the question whether the 1990 recession in U.S. will again result in the Singapore economy slowing down or the Singapore economy has finally come out of age and is no longer as vulnerable as before. The research concludes that U.S. recession do have some implications on our economy. However the impacts are not as significant as predicted by the authorities and the public. The support of the above statement can be summarized by the following three aspects : 1) Singapore has been watchful of possible recessionary trends in U.S. since early 1990 when the latter recorded slowdown in growth for three consecutive quarters starting from the second quarter of 1989, and has renewed efforts to diversify the economy to reduce Her reliance on one country. Hence the Government's intelligent economic management has led Singapore's real Gross Domestic Product (GDP) to grow by a more than respectable 6.7 per cent in 1991, despite the U.S. recession. 2) In recent years, trade and capital links with countries in the Northeast Asia such as Taiwan and South Korea has widen as these countries are forced to be more open and recycle their surpluses. In addition, the East European countries including the Soviet Union has grown. Hence the traditional dependence on the U.S. and the EC is downplayed. 3) According to Statistics on foreign equity investments in Singapore, U.S. investors reaped the highest returns. This attractive rate of return, together with the Republic's efficient business infrastructure as well as locational advantage within the Asia-Pacific area, enhanced U.S. investors into Singapore despite the problems at home. Furthermore these firms have helped in generating external trade with their homeland and other foreign affiliates. Hence in trade, the U.S. remains the city-state's major partner in 1991. As for tourism, due to the marginal rise in U.S. business travelers, U.S. is among Singapore top ten tourist-generating markets. The study has been extended to forecast the U.S. economic condition in the near future and its implication on Singapore's future growth. From the information gathered, it can be concluded that U.S. is indeed recovering. Evidences include the increased in the final domestic demand and private consumption. The slump in the Manufacturing industry too has bottomed out and the Government spending are keeping the construction buoyant. Hence the Republic's overall exports to the U.S. are anticipated to rise marginally, American investments flows in both manufacturing and service sectors will continue to be forthcoming in 1992 while visitor arrivals from U.S. should improve during the year, given our locational advantage, enhanced tourist attractions and rising business opportunities in the Southeast Asian region. Nevertheless, it is still recommended that Singapore should continue to diversify Her export market and investment origin to reduce Her reliance on one country.