Living with SARS: Living with SARS:

The Economic Consequences The Economic Consequences on Singaporeon 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• Post SARS: The Initial Upturn• Support Provided by

Macroeconomic Policy

Business Cycles

in Singapore

GDP Growth from 1980

-15

-10

-5

0

5

10

15

20

1980 1984 1988 1992 1996 2000

YO

Y %

Gro

wth

-60

-40

-20

0

20

40

60

80

YO

Y %

Gro

wth

Singapore’sReal GDP (LHS)

Composite Foreign

GDP (LHS)

Global Chip Sales (RHS)

2003Q2 (est.)

World Demand-Domestic Supply Curve

DS1

WD1

WD2

Price Level (Domestic currency)

Real GDPQ1Q2

Fall in External Demand

Drop in Exports

Businesses' Profit Margins Squeezed

Cutback in Investment Spending

Cutback in Labor Costs:Wage Cuts,

Shorter Work Weeks, Retrenching Workers

Private Disposable Income Falls

Drop in Consumer Spending

Consumer Sentiments Down

Decline in GDP

Dynamics of a

Downturn

A Different Kind of Shock

SARS:A MedicalEmergen

cy

Direct Impact

on Consume

r Behaviou

r

People Shun

Crowded Places

Negative Impact

on Commerce Sector

GDP Growth

Globalisation

Exposure to Foreign Risks

The Economy Pre-SARS

GDP Profile of Various Recessions in Singapore

96

98

100

102

104

106

108

110

112

114

-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6

Ind

ex

, Se

as

on

all

y A

dju

ste

dRecovery derailed by

uncertainties…

2001 Downturn

Trough = Q3 01

1998 Asia Financial Crisis

Trough = Q3 981985 Recession

Trough = Q4 85 Q2 2002

quarters

… as manufacturing output levelled off due to geopolitical

uncertainties…

95

100

105

110

115

120

125

130

135

Q12001

Q2 Q3 Q4 Q12002

Q2 Q3 Q4 Q12003

Ind

ex (

Q3

2001

=100

), S

A

Manufacturing Value-added

Q3 01

The Q2 Impact from SARS…

Verily I say unto you; where art

thou, my patrons?

Four Stages of an Epidemic

Timeline

Acceptance

Up to 4 quarters

Public accustomed to epidemic

Fears dissipated

Partial resumption of economic activity

Intensive research on cure

Possible Relapse

A few months

Denial Low public awareness

First fatality reported

1-2 quarters

Impact/Fear Greater public

awareness

Fear factor

Economic activity disrupted

Heightened uncertainties & risk aversion

Stepped up measures to prevent the spread of the disease

Recovery

Infection rate tapers off

Economic activity slowly returns to pre- crisis levels

Underperformance for several years before returning to trend

The outbreak had disproportionate impact on the

various sectors…

Tier 1:

Severely

Affected

Hotels

Air Transport

The outbreak had disproportionate impact on the

various sectors…

Tier 2: Significantly Affected

Restaurants

Retail

Land Transport

Tier 1:

Severely

Affected Hotels

Air Transport

The outbreak had disproportionate impact on the

various sectors…

Tier 1:

Severely

Affected

Hotels

Air Transport

Tier 3: Moderately Affected

Real Estate

Stock broking

Tier 2: Significantly Affected

Restaurants

Retail

Land Transport

The outbreak had disproportionate impact on the

various sectors…

Tier 1:

Severely

Affected

Hotels

Air Transport

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 3: Moderately Affected

Real Estate

Stock broking

45

50

55

60

65

70

75

80

85

Jan2000

Jul Jan2001

Jul Jan2002

Jul Jan2003

Ra

tio

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

YO

Y %

Gro

wth

Air Passenger Growth (RHS)

Passenger Load Factor (LHS)

100

200

300

400

500

600

700

800

Jan2000

Jul Jan2001

Jul Jan2002

Jul Jan2003

Th

ou

san

ds

-90

-60

-30

0

30

YO

Y %

Gro

wth

Level (SA)

YOY Growth

Tier 1 Travel Related Segments

State in Apr-May: Critical Condition

Visitor Arrivals Air Passenger

May May

100

120

140

160

180

200

Jan2002

Apr Jul Oct Jan2003

Apr

Ind

ex

(1

99

7=

10

0)

-30

-20

-10

0

10

20

YO

Y %

Gro

wth

Level YOY Growth

State in Apr-May: Weak Condition

Tier 2 Domestic Oriented Segments

Retail Sales Volume

Tier 3 Asset Markets

State in Apr-May: Moderately Affected

95

105

115

125

135

Jan Feb Mar Apr May Jun Jul2

Tro

ug

h =

10

0

US (NASDAQ)

US (DJIA)

Singapore (STI)

2003

Domestic Demand-Supply CurveDS1

DD1

Price Level (Domestic currency)

Real GDPQ1Q2

DD2

DS2

Q3

Deadweight Cost to Society

Q3 Q2

DS1DS2

DD1

DD2

Real GDP

Price Level (Domestic currency)

Q1

Support Provided by Policy

Fiscal Support

Expansionary Fiscal Policy

off-budget packages

TransportIndustries$73.5m

Courage Fund$14.8m

Tourism-related Industries

$155m

Monetary Support

Conducive Monetary Conditions

Low Interest Rates Flexible Mgt of S$

Support Provided by PolicyDS1

DD1

Price Level (Domestic currency)

Real GDPQ1

DD2

DS2

A

DS3

B

Q3

Q4

Q2

Post-SARS: the

InitialUpturn

Travel-related sectors saw a modest turnaround around

end-Q2

-80

-60

-40

-20

0

20

40

60

80

2000 2001 2002 2003

MO

M S

A %

Gro

wth

20

30

40

50

60

70

80

90

Ho

tel

Occ

up

ancy

Rat

e (%

), S

A

Air Passengers Handled (LHS)

Jun

Visitor Arrivals

(LHS)

Hotel Occupancy Rate (RHS)

Manufacturing sector could see some recovery going forward

Recession Unlikely, Q3 growth positive, Improvement in Sars hit sectors

90

95

100

105

110

115

120

125

2000 2001 2002 2003

Ind

ex (

1999

=10

0),

SA

7

8

9

10

11

$ B

n,

SA

Index of Industrial Production (LHS)

Non-oil Domestic

Exports (RHS)

Jun

Outlook for GrowthExpansiona

ry Fiscal Policy

multiplier effect

Support for the economy

Easier Monetary

Condition

s

Weak External Demand?

2nd Waveof Infection?

GDP Forecast Range

0.5 – 2.5%

Singapore hit by increasing frequency of shocks

* Key Points *

Sars was different in natureSars was different in nature• Medical Emergency• Both DD/SS Effects• Sectoral Specific

Economic ResilienceEconomic Resilience• Strong Institutions

• Decisive Govt Response (Medical+Economic) • Flexibility in Markets • Social Cohesion

~ Thank You ~