Global Recession Impact on Singapore

This essay examines the impact of the 2008-09 global financial crisis (GFC) on Singapore's economy. It details how Singapore's export-oriented economy was heavily affected by reduced demand from developed nations, leading to a decline in manufacturing, rising unemployment, and negative GDP growth. The essay analyzes the government's policy responses, focusing on the "Resilience Package," a $20 billion fiscal stimulus aimed at job preservation, bank lending stimulation, business support, family assistance, and infrastructure development. The essay uses Keynesian economic principles to illustrate how the package aimed to increase aggregate demand and stimulate recovery. It also discusses additional policy suggestions, such as diversifying export markets and improving labor market flexibility. The essay concludes that while the policies helped Singapore recover relatively quickly compared to other nations, challenges remained, particularly regarding labor productivity and the need for ongoing economic restructuring.

Running Head: Global Recession and Singapore
The Impact of the Global Recession on the Singapore Economy and the Policy Implements
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Running Head: Global Recession and Singapore 2
The Impact of the Global Recession on the Singapore Economy and the Policy Implements
Introduction
Singapore is a democratic state and is considered one of the most prosperous economies
in the world (Heritage.org, 2017). Since it gained independence in 1965, it has been ruled by the
People’s Action Party (PAP) (only a single party). The PAP has restricted the freedom of speech
and that of assembly. However, it has embraced international trade and economic liberalization.
The service sector has the highest contribution to its GDP although this economy is a major
producer of chemicals and electronics. The major factor behind the success of the economy is
that it’s legal and political environment has been stable and that it has implemented prudent
macroeconomic policy. Most of the key sectors in this economy are state owned and the
government’s involvement is substantial.
However, despite being considered a prosperous nation, this economy is still suffering
from impact of the 2008-09 global recession (Todayonline.com, 2017). The recovery has not
been an easy process; and this is the case for many other nations. According to Mason (2017),
the investors’ mindset are still being shaped by the aftermaths of the global recession. In order to
answer the question effectively, we shall analyze the impact of the GFC specifically on the
Singaporean economy. We shall consider all the policies the government policy makers
implemented to get this situation under control. The GFC affected the Singaporean aggregate
demand and led to a fall in the real output; the impacts shall be considered and policy actions
shall be suggested. One of the policy actions announced in 2009 was the resilience package, we
shall analyze the components of this package and its impacts on the economy.
Causes of GFC in Singapore
The GFC started in the US and spread to almost every other nation in the world. It was
fast spread owing to the interrelatedness and interconnectedness of nations due to globalization.
International trade is one of the major ties that raise this interrelatedness. Singapore depends
more on its export for manufactured goods. According to Balakrishnan (2017), the beginning of
GFC in Singapore was after the US and Europe’s consumer demand for manufactured goods
started falling; its export sector was greatly hammered. Gow (2008) pointed out that the US and
Europe were already falling into a recession or rather on it and this is explaining the reason for
their reduced demand for exports. He also noted that the only economy that was expected to have

Running Head: Global Recession and Singapore 3
some continued growth was China because it had already put in place some regulatory measures
and monetary policies.
When the impacts of the GFC were spread to Asia, Singapore was the first economy to be
hit by the global economic slowdown owing to it’s over dependency on export to the developed
economies (Loong, 2008). During that period, India and China were experiencing rampant
growth and Asia was not expected to be hit much by the GFC; however, Singapore’s trade was
much tied to the West economies that were experiencing slowing growth. The year 2009 was
projected to be a difficult year for many economies. Min (2016) pointed out that this was the
most difficult period for this economy.
The GFC Impact on the Singaporean Economy
In the 3rd quarter of 2008, the manufacturing sector in Singapore shrunk by 11.5% owing
to the slump in pharmaceuticals. The GFC did not have a significant impact on the service and
construction sector as there was a steady growth. Prime Minister Loong noted that the financial
markets were gripped by fear and panic that would take long to subsidize. During the GFC, the
Singapore’s unemployment rate rose to a high level, this is irrespective of over 200,000 job
created in 2006-2007. The following graph shows the changes in unemployment rate in 2008-09.
Fig: Singapore’s unemployment rate
Source: Tradingeconomics.com (2017)
The over 200,000 jobs created in Singapore in 2006-07 had led to the unemployment
level falling to a low level of approximately 1.7% as can be observed above; this was on the 3rd

Running Head: Global Recession and Singapore 4
quarter of 2007. However this was not sustained as the rate started rising again on the 4th quarter
of the same year. The highest unemployment rate was reached in 2009 of approximately 3.8%.
Through policy measures and regulations, the unemployment rate was lowered to approximately
2.2% in 2010 and has been maintained at an average rate of 2% since then.
Fig: Inflation rate in Singapore
Source: Tradingeconomics.com (2017)
The inflation rate during the global recession was too low indicating that there was insufficient
demand. The economy thus had to be stimulated by using expansionary policies.
Fig: GDP growth rate in Singapore
Source: Tradingeconomics.com (2017)

Running Head: Global Recession and Singapore 5
The Singaporean GDP growth rate was negative during the recession, but a recovery was
achieved in 2010 when positive rates started being recorded. However, the rate has remained to
be close to zero since then.
There are other domestic issues noted to have resulted as a result of the global recession
as noted by Thangavelu (2008). One of such domestic issue is the decline in labor productivity
growth from -0.9% in 2007 to -6.5% for the 2nd, 2rd and 4th quarter of 2008. The labor force has
to be improved in order to level the unemployment impacts and strengthening the recovery of
this economy. The second issue is that there were so many laid off workers who needed to be
reemployed. The issue now was that businesses were willing to reemploy only the productive
workers. This created a challenge for the low skilled workers to get a new job and thus required
extended periods of upgrading specific skills and trainings.
Policies Implemented During the GFC
One of the policy implemented during the GFC by the Singapore’s Monetary Authority
(Central Bank) was that of shifting its policy of foreign exchange rate on its dollar to “Zero per
cent appreciation” in an attempt to promote the competitiveness of its exports; initially the
appreciation of its dollar was modest and gradual. Hedrick-Wong said that the Singaporean
dollar being strong was detrimental to the economy’s growth, especially the manufacturing
sector (Balakrishnan, 2017). Thus, the only way to promote exports was to weaken the
Singaporean dollar. The resilience package is a very important fiscal policy that was proposed in
2008 to help the economy in getting back to its initial position. The package had various
components that will be discussed in this paper.
The GFC Impact on the Singaporean Aggregate Demand
The aggregate demand is computed through the summation of four components;
consumption, investment, spending by the government and net exports (Amadeo, 2017). AD = C
+ I + G + (X – M).
As have been noted earlier of the over dependency of Singapore on exports, the reduced demand
for exports lowered its net export component. The export was lower whereas the import level
was higher; the net export recorded was therefore negative and thus played a part in lowering the
Aggregate Demand. The investment sector was impacted because the willingness for the lending
institutions had gone down owing to the increased risk of defaulting; thus, there was a challenge
in obtaining capital for investment which caused the spending on investment to fall. The

Running Head: Global Recession and Singapore 6
consumption component also fell because many people had no jobs and wages were lowered for
many others which made the income available for consumption to decrease. The only component
that increased in the government spending on various attempts to stimulate some recovery.
Policy Suggestions
The Singaporean government should have looked for a newer markets for its
manufactured goods on the economies experiencing rampant growth during that period such as
China and India. This is because weakening of the Singaporean dollar could inculcate some
inflation issues that could worsen the situation. During the period of prolonged recession,
economy’s become more innovative and technologically-intensive and thus industries gets
restructured with new technologies which can bring about a robust growth. Since the US and
Europe were bound to restructure their industries, the Singapore policy makers should have had a
close look on the actions taken by these economies so that they could also restructure its
industries in line with those restructured so as to maintain the competitive nature of the
Singapore industries in those markets. New industries should also be introduced to link up the
new production networks.
Also on the side of local businesses and households, the government should have
considered moderating the government service fees in order to ease the pain that was being
experienced during the crisis. The government should also have considered making the labor
market flexible and subsequently encourage businesses to lower the wages for their employees
and maintain the actual number of employees. This would have helped in stopping the
acceleration of the unemployment rate which became a major challenge to many workers.
External shocks could have been driven more effectively by smoothing out the global shocks
which could be achieved through incorporating the ASEAN to be a single market. The
government could also have eased the barriers to investment on services and on trade so as to
stimulate some growth of the aggregate demand.
Components of the Resilience Package
The resilience package advanced by the Singaporean government as a fiscal policy
instrument had five components amounting to $20 billion (Singaporebudget.gov.sg, 2009). The
five components according to Hwang (2011) were; $5.1 billion on jobs preservation; SG$5.8
billion on Bank lending stimulation; SG$2.6 billion on ensuring that businesses maintain their
cash flows through tax measures and grants; SG$2.6 billion on helping families; and SG$4.4

Running Head: Global Recession and Singapore 7
billion on infrastructure development, expansion of the provision for education and healthcare.
On the jobs preservation the government had planned to issue cash grants on employers for them
to retain their workers; this was a subsidy given by the government for the employers to pay
wages. The other theme is Workfare Income Supplement (WIS) for encouraging those low-paid
workers to continue working. Another theme is Skills Programme for Upgrading and Resilience
(SPUR) to enable workers to be absent and undertake various trainings (Basu, 2010). The last
theme is the public sector expansion for recruitment.
On bank lending stimulation, the government aimed at enhancing a special Risk-Sharing
Initiative (SRI) where the government had to take 75% risk of trade loan to ensure that investors
were able to acquire loans. On tax measures and grants, the government was aiming at providing
various tax rebates, relief and exemptions. On supporting families, the government aimed at
assisting households directly and helping the vulnerable groups. The last component was to make
Singapore a better home in the future by improving infrastructure, education, healthcare and
funding development programs.

Running Head: Global Recession and Singapore 8
Impacts on the Economy
Fig: The Keynesian cross diagram
AD
AD = Y
AD2 = C + I + G + (X – M)
A B C AD1 = C + I + G + (X – M)
45o
AD = Y Real GDP
AD¿Y Equilibrium AD ¿ Y
Demand too high Demand too low
Curve AD = Y shows all possible combinations for AD = output and income. The model
assumes that firms can only influence their output but not their price. During a recession, there is
a deficiency in spending and thus the economy operates at point C. with a deficiency in demand,
the firm fails to have an incentive to produce more. The changes in the AD component shifts the
AD = C +I + G + (X-M). The AD curve will shift upward owing to the success of the Fiscal and
monetary policies the Singaporean government implemented (The shift will be from AD1 to
AD2) (Frank, Bernanke, Osberg, Cross & MacLean, 2017).
All the policies implemented during the GFC were meant to stimulate the Singaporean
economic growth. In fact, these policies can be argued to have really helped the Singapore
economy to achieve its recovery. The resilience package played an important role in ensuring
that people kept their jobs, ensured that people were able to demand goods and services by
subsidizing their income. The unemployment rate fell in 2010 as an impact of this resilience
package. The negative economic growth experienced during the recession was eliminated and as

Running Head: Global Recession and Singapore 9
at 2010, a positive economic growth was projected. Thanks to the policies implemented that the
Singaporean economy was able to recover within a short period compared to other nations.

Running Head: Global Recession and Singapore 10
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