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Living with SARS: The Economic Consequences on Singapore

Living with SARS: The Economic Consequences on Singapore. Edward Robinson Economic Policy Department Monetary Authority of Singapore 2 August 2003. Outline of Presentation. Business Cycles in Singapore The Economy Pre-SARS Diagnosis: The Q2 Impact from SARS

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Living with SARS: The Economic Consequences on Singapore

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  1. Living with SARS: The Economic Consequences on Singapore Edward Robinson Economic Policy Department Monetary Authority of Singapore 2 August 2003

  2. Outline of Presentation • Business Cycles in Singapore • The Economy Pre-SARS • Diagnosis: The Q2 Impact from SARS • Post SARS: The Initial Upturn • Support Provided by Macroeconomic Policy

  3. Business Cycles in Singapore

  4. GDP Growth from 1980 Singapore’sReal GDP (LHS) Composite Foreign GDP (LHS) Global Chip Sales (RHS) 2003 Q2 (est.)

  5. World Demand-Domestic Supply Curve DS1 Price Level (Domestic currency) WD1 WD2 Q2 Q1 Real GDP

  6. Fall i n External Demand Drop in Exports Businesses' Profit Margins Squeezed Dynamics of a Downturn Cutback in Investment Cutback in Labor Costs: Wage Cuts, Shorter Work Weeks, Retrenching Workers Spending Private Disposable Consumer Income Falls Sentiments Down Drop in Consumer Spending Decline in GDP

  7. Direct Impact on Consumer Behaviour People Shun Crowded Places Negative Impact on Commerce Sector SARS:A MedicalEmergency GDP Growth Exposure to Foreign Risks Globalisation A Different Kind of Shock

  8. The Economy Pre-SARS

  9. Recovery derailed by uncertainties… 1998 Asia Financial Crisis Trough = Q3 98 1985 Recession Trough = Q4 85 Q2 2002 2001 Downturn Trough = Q3 01 quarters

  10. … as manufacturing output levelled off due to geopolitical uncertainties… Q3 01 Manufacturing Value-added

  11. The Q2 Impact from SARS… Verily I say unto you; where art thou, my patrons?

  12. Denial Impact/Fear Acceptance Recovery • Low public awareness • First fatality reported • Greater public awareness • Fear factor • Economic activity disrupted • Heightened uncertainties & risk aversion • Stepped up measures to prevent the spread of the disease • Public accustomed to epidemic • Fears dissipated • Partial resumption of economic activity • Intensive research on cure • Infection rate tapers off • Economic activity slowly returns to pre- crisis levels • Underperformance for several years before returning to trend • A few months • 1-2 quarters • Up to 4 quarters Possible Relapse Four Stages of an Epidemic Timeline

  13. Tier 1: Severely Affected Hotels Air Transport The outbreak had disproportionate impact on the various sectors…

  14. Tier 1: Severely Affected Hotels Air Transport The outbreak had disproportionate impact on the various sectors… Tier 2: Significantly Affected Restaurants Retail Land Transport

  15. The outbreak had disproportionate impact on the various sectors… Tier 3: Moderately Affected Real Estate Stock broking Tier 2: Significantly Affected Restaurants Retail Land Transport Tier 1: Severely Affected Hotels Air Transport

  16. The outbreak had disproportionate impact on the various sectors… Tier 3: Moderately Affected Real Estate Stock broking Tier 4: Less Affected Manufacturing Construction Post and Communication Wholesale Sea Transport Services Allied to Transport Tier 2: Significantly Affected Restaurants Retail Land Transport Tier 1: Severely Affected Hotels Air Transport

  17. Tier 1 Travel Related Segments State in Apr-May: Critical Condition Visitor Arrivals Air Passenger May May

  18. Tier 2 Domestic Oriented Segments State in Apr-May: Weak Condition Retail Sales Volume

  19. Tier 3 Asset Markets State in Apr-May: Moderately Affected US (NASDAQ) US (DJIA) Singapore (STI) 2003

  20. DS2 DD2 Q3 Q2 Domestic Demand-Supply Curve DS1 Price Level (Domestic currency) DD1 Q1 Real GDP

  21. DS2 DS1 Price Level (Domestic currency) DD1 DD2 Q3 Q2 Q1 Real GDP Deadweight Cost to Society

  22. Support Provided by Policy

  23. Tourism-related Industries$155m TransportIndustries$73.5m Courage Fund$14.8m Fiscal Support Expansionary Fiscal Policy off-budget packages

  24. Monetary Support Flexible Mgt of S$ Low Interest Rates Conducive Monetary Conditions

  25. DS3 DS2 A B DD2 Q3 Q2 Q4 Support Provided by Policy DS1 Price Level (Domestic currency) DD1 Q1 Real GDP

  26. Post-SARS: theInitialUpturn

  27. Travel-related sectors saw a modest turnaround around end-Q2 Hotel Occupancy Rate (RHS) Air Passengers Handled (LHS) Visitor Arrivals (LHS) Jun

  28. Manufacturing sector could see some recovery going forward Index of Industrial Production (LHS) Non-oil Domestic Exports (RHS) Jun Recession Unlikely, Q3 growth positive, Improvement in Sars hit sectors

  29. Outlook for Growth Easier Monetary Conditions Expansionary Fiscal Policy multiplier effect Weak External Demand? 2nd Waveof Infection? Support for the economy GDP Forecast Range 0.5 – 2.5%

  30. * Key Points * Singapore hit by increasing frequency of shocks • Sars was different in nature • Medical Emergency • Both DD/SS Effects • Sectoral Specific • Economic Resilience • Strong Institutions • Decisive Govt Response (Medical+Economic) • Flexibility in Markets • Social Cohesion

  31. ~ Thank You ~

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