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Economics - How a Shrinking Gdp Affects the Economy of Singapore

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Economics - How a Shrinking Gdp Affects the Economy of Singapore
In a recent article by Channel News Asia dated 13 July 2012, it was reported that Singapore 's GDP contracted by 1.1% on a Quarter-on-Quarter seasonally-adjusted annualized basis, compared to the 9.4% expansion in the preceding quarter. The weakened growth momentum in Q2 was mainly due to a sequential contraction in the manufacturing sector. The sector declined by 6.0% reversing the 20.9% expansion in the preceding quarter. Annex A

Singapore is an open economy with high trade to GDP ratio of 2.3 times (GDP 2011 was $326B, whereas total trade value in 2009 was $747.15B) and is exposed to many external factors, especially economic development in a main export market. Our main trading partners are: Malaysia China Euro zone USA Indonesia – 11.9% – 10.4% – 11.1% – 6.5% – 9.4%

These 5 regions accounted for 50% of Singapore’s total trade, of which the US, Euro zone and China contributed 28%. Any negative economic news in these 3 regions will have sizable impact on our economic development.

The US economy grew at a lower 1.5% in Q2 compared with 1.9% in Q1, which establishes the fact that the US economy is growing at an anaemic rate. In addition Singapore’s second largest trade partner the 27-nation European Union (EU) is currently in recession and does not have the ability to purchase the same amount of Singapore’s goods and services as they did before (demand declines).

From the article, it can be inferred that demand for our exports has decreased. The cause can be attributed primarily to 2 main reasons; 1) The weakening of the economies of our trade partners 2) The strengthening of the SGD

The strength of the SGD has also contributed to Singapore’s declining exports. In this aspect it is making export prices uncompetitive. (For the same $ spent, fewer goods could be purchased) Conversely a strong currency allows for higher purchasing power which would lead to an increase in imports. Exports to the EU totalled SGD$48.1 billion last year, while imports



References: Article; Channel News Asia Singapore 's Q2 GDP shrinks 1.1% on-quarters By Yvonne Chan/Lynda Hong | Posted: 13 July 2012 0803 hrs http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1213299/1/.html MAS: Fiscal Policy http://www.sgs.gov.sg/macro_overview/macrooverview_fiscal.html Singapore budget 2009: Resilient package http://www.mof.gov.sg/budget_2009/index.html Singapore taps reserves for S$20.5b economic stimulus plan http://www.channelnewsasia.com/stories/singaporelocalnews/view/404182/1/.html Annex A Ministry of Trade and Industry (MTI); Gross Domestic Product at 2005 Prices http://www.singstat.gov.sg/news/news/advgdp2q2012.pdf Annex B Department of Statistics Singapore: Monthly consumer price index http://www.singstat.gov.sg/news/news/cpijun2012.pdf Annex C Time Series on Annual GDP at Current Market Prices http://www.singstat.gov.sg/stats/themes/economy/hist/gdp2.html

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