Economic outlook II

All thanks to kazana.. Am obliged to talk about the economy once again.

Our dear small Lee mentioned that our GDP might probably contract more than the expected 2-5% to a 8%. Another head economist in US predicted a 10% contract in SG's GDP. So what is the significance of GDP contraction?

GDP simply means the total value($ terms) of all goods and services produced in SG. A 2007 estimate from wikipedia shows that our GDP is about $228billion. Assuming a 2% growth( not very sure the growth amount in 08, but our 4th quarter plunge like free), our GDP in 08 should be around $233billion.

So, assuming a worst case scenario of 10% contraction, what is the implication? It simply means $23.3billion of these goods and services will be "destroyed"!

So assuming the GDP per person to be $60,000, a simple math of how much jobs destroyed will be $23.3billion / $60 000 = a whopping 383 000 jobs !

Of course this is an OVER simplified calculation. But none the less, the rough idea is that a drastic plunge in GDP will definitely affect us no matter what.

Some people say its the worst recession since independence. Some say we are "bottoming out" soon and expecting a recovery next year. Which story to buy? I personally think that it pays being abit more pessimistic.

In the 97 Asian Financial Crisis, we managed to recovered due to export growth to US. US itself consumes near 75%(cant rmb the figures, but along the line la) of Asia's exports. But now US is in serious shit. European Union EU is equally shitty as well. So to put it simple across, SG's export growth strategy will NOT steer us out from this recession.

What about "pump-priming" the economy? ( Means give citizens cash/tax rebates to spend more, spend more to save businesses!) SG is unfortunately a)small and b)dependent on imports. Most of the pump priming effects meant to save local businesses will ultimately be leaked out and spent on foreign imports as we're dependent on them! Countries like US and China, with hell lot of people and local business then might be able to tap into this!

However not to be so pessimistic, we have our dear ah tiong friends! I strongly believe no matter how we dislike them, they will ultimately help steer us out of this deep shit. Why?

a) Consumer market potential - just by looking at their sheer population size. A whopping 1.4billion as compared to world's 6.76billion! IF everyone of them spend a dollar on SG export, we will be a whopping $1.4billion richer.

b) Rising GDP per person - definitely a gd news to us! IF they spend 2 dollars instead of 1? ^_^

However, these are very simple assumptions. This recession is one whole serious business affecting the whole world. No one is spared, unlike previous recessions. Even countries as far as Iceland is affected. FYI, Iceland effectively went bankrupt and was bailed out by the IMF. So if you're hell rich, you can pay for their debts and be king of Iceland. I bet they will pray to you like a god.

Anyway, lets hope we can hope on a ride to China's growth and ride ourselves out!

Food for thought: It’s a recession when your neighbour loses his job; it’s a depression when you lose yours. - 33th President of US, Harry S. Truman

So issit a recession or a depression?