SINGAPORE and the region will not escape the financial tsunami sweeping through Wall Street, according to local economists.
They told The Straits Times yesterday that the man on the street will feel the fallout from the credit crisis in the form of a tighter jobs market, sinking asset prices and shrinking corporate bottom lines.
Singapore's growth will probably also be affected. Exports are likely to take a further hit and the domestic economy will experience a slowdown.
However, the economists added that the situation unfolding now is not as severe as during the Asian financial crisis of the late 1990s.
Citigroup's Kit Wei Zheng said the storm in the US will 'increase the risk on the export front', leading to 'a broadening of the slowdown into the domestic economy'.
'First to be hit will be the export-oriented sectors such as manufacturing, and the externally-oriented sectors, like tourism. The slowdown will also filter through to affect domestic demand.'
OCBC Bank economist Selena Ling said: 'It's a confidence crisis more than anything else. The biggest question now is, who's next in line?'
The economists pointed to the way this week's dramatic events could reach down to affect the man on the street.
Consumers are likely to tighten their belts and cut spending and investment in light of plunging equity markets.
That will mean corporate bottom lines will be dampened, and firms will in turn be more cautious about expansion, resulting in fewer jobs created.
These are likely to be accompanied by falling property prices, leaner bonuses and smaller salary increases.
Banks will also turn more defensive, limiting loans for cars, homes or business expansion.
The economists noted that the impact of a giant insurer such as AIG going under would be greater than that of an investment bank like Lehman Brothers.
Ms Ling said: 'That's because insurance cuts across both companies and consumers. If an insurer goes under, consumers will be affected via auto, personal policies. It'll have a greater economic impact.'
Nanyang Technological University economist Choy Keen Meng said the maelstrom will result in fewer jobs for the financial sector.
But he added: 'I don't think the deterioration will be substantial...I don't think we're anywhere close to the 2001 recession scenario...unless the whole world goes into a recession.'
Other economists also aired the view that the crisis is nowhere near as bad as during the Asian financial meltdown.
Mr Kit said: 'Asia's not at the epicentre of this crisis, so I don't think it'll be that severe. The region has restructured and is more resilient. We're not looking at a meltdown.
'But what it'll mean is that the slowdown in Singapore will be a lot more painful than what people were expecting at the start of the year.'
Ms Ling added: 'Asia's still growing now - that's the key distinction as compared to the previous period. The crisis is more concentrated in the US, and is spreading to Europe and Japan.'
And economists are not all scampering to trim their 2008 growth forecasts in the wake of Wall Street's mayhem.
Standard Chartered Bank's Alvin Liew said: 'We are still fairly comfortable with keeping our full-year 3.5 per cent forecast unless the third-quarter prelim GDP growth turns out much worse than the 0.4 per cent year-on-year projection we made.'
But not everyone is as optimistic.
Mr Kit said: 'The current situation reaffirms our bearish view over the next 12-18 months. The 4-5 per cent Government growth forecast range may not be realistic any more, and growth could fall under 3 per cent this year and the next.'