Why Singapore Businesses Would Hate another U.S. Recession

Between the years 2007 and 2009, the U.S. experienced a recession that led to a global financial crisis. This was precipitated by the emergence of sub-prime loan losses and exposure to other high-risk loans and over-inflated asset prices.

Singapore was the first country in Eastern Asia to succumb to a recession. This was despite its buoyant economic growth with a GDP growth rate of up to 7.5% over a preceding couple of years. Economic growth was the anchor on good infrastructure, a highly productive labor force, a well-establish business, and a legal environment. Besides that, the country had a rating as one of the least corrupt countries in the world.

Here’s a quick look at what drove Singapore to the recession and why businesses in Singapore would hate another U.S. recession.

Reliance on Exports

Singapore was and still is heavily reliant on exports for its growth. In 2007 total gains from exports stood at a whopping $313 billion in 2007, which was more than double the country’s GDP.  In 2015, the GDP of Singapore was U.S.  $ 468.9 Billion, of this output, exports contributing a total of U.S. $ 346 Billion which was 74% of the total Singaporean production.

Singapore mainly exports medical equipment, aircraft and spacecraft parts, chemicals and pharmaceuticals, and electronics and IT products to North America (including the U.S.), Europe, China, and other Asian countries. The largest trading partners are China and other Asian Countries, constituting about 70%. While the U.S., Europe, and Japan represent about 28% of its total export market.

The recession in the U.S. which followed by the global financial crisis had a deep impact on Singapore’s main export markets. Demand was significantly cut, scaling down the country’s exports severely. This resulted in slow economic growth and massive job cuts triggering a major recession.

Impact on the financial sector and Investments

Just as the recession in the U.S. was trigger by a financial crisis. Singapore’s financial and investment companies received a fair share of the impact of the credit crunch. Massive losses reporting by the country’s sovereign wealth funds as well as the Investment Corporation of Singapore. They had invested heavily in overvalued “toxic” U.S. assets such as Lehman’s Minibonds which later plummeted. As a result, much apprehension followed investments and affected capital spending. Thus, projects were stalled, postponed or cancelled.

Stock market volumes and prices fell substantially which led to a decline in household wealth a contraction of consumer spending and affected financial services as well as property sales. Another recession in the U.S. would have an adverse impact on the capital markets as the U.S. is the single largest foreign direct investor in Singapore with a stock of assets valued at over U. S. $ 153 Billion.

Singapore businesses would hate another recession in the U.S. This is because the country is still heavily reliant on exports due to its small and open economy and vulnerable to capital reversals thus susceptible to depressions in the financial markets.

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