Singapore faces the abyss and what I can do about it!

January 21, 2009
Singapore faces devastating exodus of foreigners
Leo Lewis, Asia Business Correspondent
From Times Online

Singapore faces an exodus of 200,000 foreigners as the financial services and manufacturing industries scythe through their workforces and the city-state grinds towards the worst recession in its 43-year history.

The expected exodus, predict analysts at Credit Suisse, could see the number of people living in the tiny but economically powerful island shrink more than 3 per cent to just 4.68 million by 2010 in a shift that would severely undermine the government’s 22-year efforts to boost the population through immigration.

A broad rule of thumb, said analysts at UBS in Singapore, is that nearly every new job created over the last few years went to a foreigner. The economic policies of the city state have overtly relied on its ability to attract talent and skills from abroad.

The departure of thousands of ex-pat bankers, lawyers and accountants between now and 2010 is expected to lead a secondary exodus of manufacturing, construction and service sector foreign workers.

Job losses will hit Singapore hard, said Credit Suisse economist Cem Karacadag, “because they affect more highly paid workers and could result in a semi-permanent drip in the population”. He added that the potential drop “would have far-reaching implications for the economy” including a possible sharp contraction in private consumption.

The knock-on effects of a Singapore exodus, some real estate analysts believe, could also see property prices fall by as much as 30 per cent from their current levels.

Credit Suisse’s grim population forecast comes amid warnings that among non-Japan Asian countries, Singapore’s open economy may be hit hardest by the global downturn. Consumption growth, said the report, could fall to almost zero.

Analysts at believe that the country’s GDP may contract by 2.8 per cent in 2009 as rising unemployment hammers domestic growth and the collapse of consumer confidence around the world hits exports.

Mr Karacadag raised a further red flag for Singapore’s economy by warning that there was a risk that forecasts were still underestimating the effects of a broad Asian downturn and further terrible news from the financial sector.

Singapore – the world’s busiest port by tonnage handled and the home of some of the world’s largest shipping companies - is already feeling the pain of an alarming slump in global trade.

With the credit crunch still affecting trade finance and the demand for Asian manufactured goods in acute decline, hundreds of container and dry-bulk ships now sit unneeded and at anchor outside Singapore. The stagnation, say brokers, is matched onshore.

In tandem with the warnings over a possible population crunch, concerns are growing among investors over the health of Singapore’s domestic banks. The “benign asset quality” environment in which Singapore banks have thrived, say analysts, has now reached an inflection point.

The ratio of non- performing loans is expected to rise sharply as the construction boom that has filled the Singapore skyline with towers and cranes begins to deflate.

Between 2003 and 2008, the population of the city state soared nearly 18 per cent in an increase driven predominantly by foreigners hired to meet Singapore’s endemic shortage of workers during the good times.

When global trade, investment banking and Asian stock markets were booming, Singapore successfully fashioned itself as a financial hub to rival Tokyo and Hong Kong and the expatriates flooded in – around 200,000 jobs were created in the financial and business services sector over the last four years.

A large number of jobs are expected to be lost in manufacturing, which accounts for about a quarter of Singapore’s GDP.


My comments:

Hi friends,

The article above makes grim reading.

On a first glance of the title, my initial response was,”So what’s so devastating about foreigners leaving?”

In my naiveté, I thought that Singaporeans (especially the lower income group) would benefit from less competition for jobs.

How wrong and how stupid I was as a more careful examination of the author’s analysis show that the exodus of all strata of foreigners will have profound implications to our GDP.

As anyone who has a rudimentary knowledge of Economics will tell you that in an open economy,

Gross Domestic Product (GDP) =C+G+I+X-M (read here)

C=Private consumption
G=Government spending
I=Investments
X=Exports
M=Imports

The author,Lewis, thinks, and I do not think anyone will disagree, that Singapore’s C, I and X will fall. I am also sure that although M will fall but it will be to a lesser extent than X, hence leading to smaller net export (X-M).

It is a given that no matter how much G (the last component) will be (and I wait with bated breath for Tharman’s budget speech on Friday 23 Jan 09 ), GDP growth will be negative ( duh?!).

Tax breaks there undoubtedly will be (eg decreased income/property tax) and these breaks would leave more money in the consumer’s pockets who, hopefully, will have less reason not to spend. Just as importantly, tax breaks will also lead to less companies turning “turtle up” or having to lay off workers.

I know many were cynical when SM Goh Chok Tong mentioned the “Paradox of thrift” and encouraged those who could afford to spend. In the coffeeshops, many were saying," Of course it's easy for SM to spend as he has million-dollar salary" etc . But he was just alluding to a Keynesian truism that is taught to all economics students. (read here)

Personally, I try not to be too miserly and do try to support small traders and shopkeepers.For example, I bought some "ba chang" dumplings and Meat “paus” yesterday even though I was not hungry (and was trying desperately and with little success to get back my BMI (Body Mass Index) below 27 much less the recommended 23!). (read here)

The elderly man and middle-aged woman from these 2 adjacent stalls were really looking forlorn and despondent. I didn’t think my few dollars would make their day but still, I think every bit helps. I have a soft spot for underdogs (as many of you would have surmised by now). I am also a chaser of lost causes - so be forewarned if you need my support for any worthy causes.

So guys (and gals), let us survive this recession together.

Keep your chins up. Keep your jobs (if possible). Spend ( if you can afford it).

Cheers,

Dr.Huang Shoou Chyuan