Shocks and Downfalls of Singapore Economy and Their Comeback

For long, extreme events have negative impacts on multi-dimensional levels of health, economic and social (Lejano and Stokols, 2014). Especially at the macroeconomic level(Balke, 1996; Farazmand, 2007; Lazzaroni and van Bergeijk, 2014; Schmitt, 1963). Managing natural disasters and economic crises is a test of governance for all national governments as immediate and long run impacts to the macroeconomy may lead to system breakdown, create chaos and replacement of governments (Lai and Tan, 2012; Lai, 2012a,b; Lai, 2014). Nevertheless, the economic repercussions and policy responses of extreme events for island nations are not as widely known or studied.

Severe Acute Respiratory Syndrome (SARS)

Having achieved an exponential rate of economic growth since independence. Singapore remains vulnerable to natural, man-made and economic crises. One significant health disaster is the Severe Acute Respiratory Syndrome (SARS) epidemic in March 2003 beginning with the diagnosis of a resident returning from Hong Kong. By July that sameyear, the epidemic grew to 238 cases in Singapore (Centers for Disease Control andPrevention, 2003). The 2007–2008 Global Financial Crisis (GFC), on the other hand. Began in August 2005 when the United States (US) subprime mortgage defaults rose significantly and issues of liquidity began to emerge in global markets.

Global Financial Crisis (GFC)

The economic impacts of GFC were direct and feel almost immediately in the Singapore economy. While SARS was recognize as a major health disaster, the economic repercussions and policy responses to extreme events for an island nation like Singapore are not as widely known or studies as compare to financial crises, such as the GFC. Furthermore, the literature on economic impact and policy responses of extreme events for an export-led island nation remained rather limited. This could be attributing to an insignificant progress of extreme events studies due to a lack of international comparators amongst various studies (Popp, 2006).

Cavallo and Noy (2010)

In their research, Cavallo and Noy (2010) studied natural disasters impact suing key indicators such as Gross Domestic Product (GDP), fiscal accounts, consumption, investment, balance of trade and balance of payments. The scholars acknowledge that the explanation of the impacts is not clearly document. Likewise, Lin et al. (2013) used four key indicators of GDP, government debt, unemployment and consumer price inflation to study and compare the impacts of the GFC on four Asian economies. It is imperative to provide precise comparative data in order to attain respectable analysis and generate effective policies.


Surprisingly, there has been little research on the comparison of extreme events with different natures that is, SARS and GFC and the associated link to island nations. Very few studies have looked at a small open developed economy with no natural resources and sheltered from natural disasters but not immune to man-made extreme events. We’ll try to offer an empirical explanation to the economic impact of different natured crises to an island nation — Singapore: epidemic versus financial. We’ll try to compare and contrast the effects of a public health disaster (SARS). And, an economic crisis (GFC) on the Singapore economy based on a selected number of economic indicators.

We think it’s a case that the impacts of such extreme events are systematic and affect all aspects of Singaporean society. Moreover, the island nation is more vulnerable to these shocks than is currently acknowledge. These shocks are systemic. That is, they do not affect only one sector but indeed all sectors of society, beginning with the financial. Lastly, this study offers policy learning on disaster management for island nations which may experience the on slaught of extreme events in the future.

Enrepot Trade

Singapore is a city state born out of crisis when it was force toward independence in 1965. The Singapore government (post-independence) uses market mechanisms and government interventions to stabilize the small open economy. Entrepot (where exports and imports are channeled in and out of ) trade has been the main source of Singapore’s economic growth at the early stage. In recent years, Singapore’s economy has moved from a production-based industry to one of service centric. Entrepot trade evolved to foreign direct investments (FDI) and export-led industries in providing local employment.

As the industry focus shifted from labor-intensive to capital-intensive to value-added production. Jobs moved upstream and created a set of valuable skillsets for the locals. Coupled this with Singapore’s export-led industries, the level of Singapore Dollar is critical in providing stability for investors as well as attaining the goal of being a reputable international financial center. Singapore’s Monetary Authority of Singapore (MAS) allows the exchange rate to fluctuate against an undisclosed band against the US Dollar. MAS’s long term goal for the currency is to allow gradual appreciation. This counters import-led inflationary pressure and maintains competitiveness via increased productivity of the exported goods and services.

Export-led economy

An export-led economy infers that any extreme events will affect Singapore’s economy in a less than ideal manner. The immediate impacts of any external extreme events may be lower level of national output and higher unemployment level. For Singapore to attain sustainable growth, hard economic growth must be balance with soft creative growth. Therefore, the island nation remains attractive for investors and migrants alike. There are arguments that hard economic growth is a result of bureau critic efficiency where market mechanisms are used in close coordination and integration with public policies and programs (Thomas and Lim, 2001).

Bull Market

To balance this with soft creative growth, Tan and Phang (2005) propose for efficiency to be complement by innovative infrastructure. As opposed to efficiency infrastructure. If one were to examine global crises dating back to post-world war. There was a rising bull market from 1948 to 1956. Followed by a falling bear market from 1956 to 1982, and arising bull market from 1982 to 2000 (Gulf Persian War 1990). Finally a falling bear market from 2000 (Iraq War 2003, SARS February–May 2003, Third Oil Crisis 2003–2008, GFC 2007–2008).

Rising Bull Market

Man-made crisis (GFC and wars) or natural (SARS) extreme events tend to occur during falling bear markets as rising bull markets are often considered correction for long-term investors. This suggests that natural and man-made extreme events occur more regularly during economic slow-downs. As a small open economy, Singapore will not be spare from the impacts of extreme events. The study of the impacts from different nature extreme events (during falling bear markets) will aid toward an understanding of the systematic shocks that may be experienced by the Singapore economy.

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