Singapore appears to be on the verge of a "techincal" recession[Link]. I can't recall a time when analyst said we were on the verge of recession and did not enter one. The global recovery has been a fragile one fraught with numerous uncertainties and recurring "mini-crisis" as the economic problems in US and Europe surfaced, subsided and resurfaced.
In the 2008-2009 recession, we fell sharply then rebounded quickly. The pain was short and sharp as govts around the world worked to counter The Great Recession to by spending trillions to prevent what many fear could be a depression. The real problems with the global economy did not go away - high debt levels, high income inequality and trade imbalance. Aggregate demand was maintained by rising debt levels in western countries as manufacturing jobs shift to china to exploit the cheap labor there - this formula for global growth is unsustainable and we are seeing it unravelling fast. If and when the recession comes, with few options left for govts to stimulate the economy, we may not be able to get out of this one so easily.
In Singapore, rising costs and the strong S$ has already hurt our manufacturing sector which slumped badly in the last quarter. The corporations doing well are banks, property developers and construction companies that are riding high on the property bubble. Most if the lending in our banks is mortgage lending and the other profitable segment is unsecured debt which has grown spectacularly in the past 2 years (Read Personal Debt Tim Bomb). See the resemblance to the US in 2005 when the economic boom was led by housing and acrivities associated with housing? The high price of housing has caused great unhappiness among Singaporeans but that is only one side of the story. When property prices begin to fall from the high levels today, the negative wealth effect and impact to our economy will be widely felt.The strategy of always trying to grow our GDP fast - by financialising our economy through deregulation, importing cheap labor, casinos, housing bubbles etc - has made us more vulnerable in the coming downturn. The growth itself did not bring about an improved quality of life for many Singaporeans as wealth has been very unequally distributed.
About a year ago, I wrote about the dire warnings of ecnomist, Warburton who wrote the book "Debt in Delusion"[my earlier article here] in 2000 about the growing problem of govt debt and the illusion of wealth created by the debt. The book has been prophetic and foresaw the "end game" of govt trying to solve the debt problem by printing money leading ultimately ti catastrophic economic consequences.
Today we are seeing a slowdown in the global economy and appear to be on the verge of new recession. The slowdown comes after trillions of dollars was spent by govts trying to stimulate the economy which added to the debt of many govts. The trillions spent should have produced quick and strong recovery but sometime towards the end of 2010 the recovery lost momentum and we started seeing a slowdown. There are serious structural issues and imbalances that have not been addressed.
Unlike the recession in 2008-2009, the western govts no longer have the financial resources to fire up the economy. They are laden with debt and had to cut down on spending . The "end game" of printing money was played by the US Fed and the European ECB. Half of Europe is now in recession and economist estimate that the US has a 50% chance of going into recession. There is a high level of debt around the world - not just govt debt but companies and household debt - the highest since The Great Depression, A recession will lead to a cascade of problems because these debts become harder to pay down in recession - we may see a vicious cycle taking hold if a recession comes. ....it will be a long one and we may see some fundamental changes to the global economy.
More than 10 years ago, Warburton wrote that printing money will be a last resort to avoid a quick collapse of the fiancial system. Warburton also wrote that it can only postpone the inevitable by kicking the can further down the road. At some pointed, the quantitative easing will result in inflation and they will have to stop. The falling US$ means that wage earners, pensioners and the poor have to contend with higher prices at a time when the economy is weak... exacerbating the effects of the imcome gap which is at the highest in 70 years. While Bernanke's QE1 and QE2 have been very unpopular, the alternative of letting the markets and economy sink back into recession is even less attractive. There are no good optoons left and time is running out. The ECB has been printing money to repurchase the debt of Greece, Ireland and Spain[Link] to prevent a collapse. They buy some time[Link] - hoping, perhaps, emerging countries in Asia and Latin America that are growing at 6% can offset the slow down in US and Europe....it is best not to be too optimstic that things will fall into place rather than fall apart as we go into 2012.