The city state of Singapore, Venice of the 21st century in terms of its mercantile prowess, has as its national anthem the refrain, "Onward, Singapore." With the data that has recently emerged on the Q1 performance of Singapore's economy, however, it may be time to change the national anthem to "Backwards, Singapore." The numbers are that bad.
This tiny Island republic, sitting at the tip of the Malay Peninsula, covers only 274 square miles, with a population of under five million. Yet through innovation, industriousness and the entrepreneurial environment facilitated by a pro-business if somewhat authoritarian government, Singapore has become a powerhouse within the global economy. Indeed, no less an authority than the World Bank has graded Singapore as the most business friendly economy in the world. However, amidst the tectonic shifts occurring as a result of the Global Economic Crisis, Singapore has discovered that it is an exceptionally vulnerable and fragile geopolitical space.
Global trade is the engine that drives the Singapore economy. The tiny nation has a vast manufacturing sector, which includes electronics, petrochemicals and engineering. With its small population, Singapore must export the products it manufactures. That export trade has led Singapore to being the fourth largest port in the world. The Global Economic Crisis, however, has sent international trade into a tailspin. All major exporters are hurting badly; Singapore is bleeding.
In the first quarter of 2009, Singapore's GDP contracted at a catastrophic rate of 11.5%, much worse than expected. In March, non-petroleum exports declined by 17%, the eleventh consecutive monthly decline. Unemployment is rising while business confidence is plummeting. The once busy port of Singapore is now almost quiescent, a reflection not only of Singapore's decline but also a window on how severely global trade has been impacted by the worldwide recession.
As in America and other major economies that have been decimated by the Global Economic Crisis, Singapore has its share of overly optimistic economists, analysts and media pundits who are trying to spin the bad news into glimmers of hope. Some have even suggested that the severity of the country's Q1 economic statistics are "proof" that the recession has hit bottom and will soon begin to ease. However, such appalling macroeconomic data cannot wear a happy face under any circumstance; it is irrefutable proof that the synchronized global recession now shattering the worldwide economy is unprecedented in its depth and reach. I think the elder statesman of Singapore, former Prime Minister Lee Kuan Yew, was more aligned with reality when he recently suggested that it will take at least six years before Singapore recovers from the effects of the Global Economic Crisis.
Amid all the horrific economic news, Singapore can boast of an advantage denied the deficit-driven economies of Europe and the United States. During the good times, the Island nation prudently set aside substantial foreign exchange reserves. Even with a recent $20 billion stimulus package, Singapore still maintains a reserve fund of $170 billion. This will provide flexibility for policymakers to address the immediate ramifications of the severe economic contraction now occurring in their country. Nevertheless, there can be no doubt that once prosperous Singapore is facing many years of economic and financial hardship that will severely test the country's capacity for entrepreneurial innovation and hard work.
If a nation that has been as prudent and fiscally responsible as Singapore is enduring a free fall meltdown in vital areas of its economy, what about the United States, which is also undergoing a significant economic contraction, but with a massive debt load instead of sizeable reserves?