Economists warn of Singapore recession if eurozone breaks up
By Aaron Low, The Straits Times/Asia News Network
June 22, 2012, 12:29 am TWN
SINGAPORE -- Singapore could sink into a deep recession if Greece's debt crisis leads to a breakup of the eurozone and causes another global downturn.
The warning came from economists yesterday who outlined a range of nightmare scenarios that, while appearing unlikely at present, remain possible if events spiral out of control.
The downbeat assessment also dovetailed with a new survey yesterday showing that Asia's top companies are less optimistic about their business outlook.
Credit Suisse economist Robert Prior-Wandesforde painted two gloomy narratives that could result in the European monetary union falling apart in the coming months.
The first is one where Greece leaves the grouping but contagion to other European countries is limited; the second involves Greece leaving and contagion spreading.
If this second scenario transpires, Prior-Wandesforde said Singapore would likely experience a deep recession by the year end with the economy contracting 4.6 percent in the fourth quarter.
If this happens, the economy would be down 0.6 percent for the whole year, similar to the 1 percent fall in gross domestic product experienced in 2009 following the financial crisis.
Singapore is officially expected to grow between 1 percent and 3 percent this year, the Trade and Industry Ministry has said, although it too has warned of rising risks over the eurozone crisis.
“This scenario assumes the most immediate impact, through the trade channels and exports to Europe and the United States,” said Prior-Wandesforde yesterday.
“There are likely to be other negative implications as well. These include a drying up of trade finance, as witnessed during the financial crisis, as well as a withdrawal of funds from the Asian region to shore up European balance sheets.”
Bank of America Merrill Lynch economist Chua Hak Bin agreed, saying his model showed that an “ugly bear case” could mean a 1 percent contraction for Singapore's economy this year.