IN CHINATOWN, the pulse of the economy can be measured by business at Lim Chee Guan, a shop that sells barbecued meat slices. Demand kicks into high gear in the run-up to Chinese New Year and this year, the queues seem just as long and the prices just as high. At Orchard Road, Singapore’s famed shopping strip, shoppers are out in force and at many popular restaurants, it is hard to get a table. Folks have year-end bonuses and ang pows on their minds and there is little hint of the economic blues.

 

Yet, the latest data suggests the Singapore economy could already be in a technical recession. That’s defined as GDP falling for two straight quarters on a q-o-q basis. In 4Q2011, the economy shrank 4.9% from the previous quarter. Several economists, such as Chua Hak Bin, head of emerging Asia economics at Bank of America Merrill Lynch, now expect a more than even chance of another q-o-q slide in GDP in 1Q2012. In fact, if we strip out the biomedical cluster, which gave GDP numbers a boost in 3Q, the economy could already have been contracting from 2Q2011.

 

A real recession would be two successive quarters of GDP falling on a y-o-y basis and for now, no one is predicting that. However, the hard truth is that we are now seeing a lot more recessions, both technical and real. Between 1965 and 1995, Singapore experienced just one recession — in 1985. In contrast, over the last 15 years, there have been three recessions — in 1998, 2001 and 2009.

 

What this means is that business cycles have become shorter and sharper, with downturns and recoveries coming and going faster. It doesn’t seem very long ago that we were wading through the dark days of the 2008/09 global financial crisis. Now, here we are, in the midst of another slowdown, one that appears to have caught many by surprise.

 

Being a small and open economy, Singapore has long had more volatility in its growth compared with larger and more domestically driven economies such as the US. A study by the Ministry of Trade and Industry (MTI) found that Singapore’s GDP growth volatility is much higher than that of other advanced economies. However, it is comparable to that of other small and open economies in Asia such as Hong Kong that are also tied to global cycles. Since 2000, though, Singapore’s volatility has increased, largely owing to the growing bio medical sector. Among the various manufacturing segments, the biomedical cluster is by far the most volatile, according to MTI data.

 

Adding fuel to the fire in more recent times is the globalisation of financial markets. With financial institutions increasingly inter-dependent and financial products transacted cross-border, a shock in one country, such as the meltdown of the US mortgage-backed-securities market, invariably sparks problems in other countries. Indeed, the slowdown we are witnessing this round is precisely because a lot of the build-up of leverage from the last crisis has not been completely resolved.

 

Households, companies and sovereign states that borrowed to the hilt during the years of easy credit now have to repair their balance sheets. This process of deleveraging, which began in the US and is now spreading to the eurozone, has repercussions for capital flows and external demand. “Singapore, being a major financial centre, will feel the shifting tides of any financial crisis more strongly,” Chua notes.