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Singapore Slump
Subject Recession
Topic International Finance
Key Words Recession, Unemployment, Interest Rates, Tax Cuts, Current Account Deficit
News Story

Singapore is the latest economy to slip into recession. The Trade and Industry Ministry released preliminary figures that indicate Singapore's economy shrank 0.8 percent in the second quarter compared with the first three months of the year. This constitutes the second consecutive quarter of decline, the technical definition of a recession. The ministry attributed the decline to slower growth in the U.S., especially in the electronics industry. A continuing U.S. slowdown will result in a weakening of the European and other Asian economies, further diminishing Singapore's chances for recovery.

Singapore is at a particular disadvantage in terms of its ability to avoid recession. Unlike China or Japan, Singapore has no natural resources or sizeable domestic economy to insulate it from a slowdown from abroad. Even the less developed countries in the region - like Malaysia and Thailand - have substantial agricultural sectors and/or oil and natural gas to buffer them from outside forces. Singapore relies heavily on imports and exports to sustain its population of over 4 million. Electronics account for more than half of Singapore's exports, and the U.S. is Singapore's principal trading partner.

Singapore is not the only Asian economy to slow. Japan's economy is likely already in recession, and many expect Malaysia, Thailand, Taiwan and the Philippines to show decreases this year. Many economists believe that these economies will remain weak until the U.S. economy recovers.

Singapore has virtually no external government debt, and $75 billion in foreign currency reserves, and therefore has the resources to ride out the current downturn.

(Updated August 1, 2001)

Questions
1. How is a recession defined?
2. Why is the Singapore economy so vulnerable to external forces such as a U.S. downturn?
3. When the ministry announced that the Singapore economy was in recession, the Singapore dollar tumbled to an 11-year low against the U.S. dollar. Why did the Singapore dollar depreciate against the U.S. dollar?
Source Wayne Arnold, "Singapore Says Economy Is in Recession," The New York Times, July 11, 2001.

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