Gdp Forecast Downgrade Effect on Singapore

The Singapore Economy

Singapore has a small domestic market with a population of 5.2 million and virtually no natural resources. Its economy consists mainly on exports, manufacturing, financial services and tourism. (Introduction to Singapore’s Economy, N.D) As Singapore’s net exports is twice its GDP, its growth is therefore largely dependent on exports and thus susceptible to external demands especially major markets like USA and Europe.

Downgrade of GDP forecast factor

The downgrading of GDP forecast was due to a weakening global market sentiment as United States credit rating was downgraded by Standard and Poors’s in early August. As the world’s largest economy, the downgrade will affect the interest rates United States government is paying for its budget deficit and ultimately affects the whole country’s economy as the ripple effect is felt on all levels. (Mui, 2011) When interest rates are low people will have more money to spend, businesses too will purchase more as cost of borrowing is lower. However as interest rates increase, consumers and businesses will have less disposable income to spend. Lesser people will borrow and banks will have higher requirements as interest rates increase and there will be fewer loans. People will tend to save more as higher interest rates will provide a higher yield. This will in turn lead to lower consumer demands and therefore slows its economy growth further.

Euro zone economies are in a fiscal crisis with many debt-laden countries struggling to avoid meltdown. As warned by Singapore Prime Minister Lee Hsien Loong at the annual Asia-Pacific Economic Cooperation (Apec) summit, this crisis could affect the whole world and lead to a global financial fallout. His view reflects the uncertainty shared by the global economy and its affects on growth across the globe. (Singapore Prime Minister’s Office