PM Lee warns of a domino effect from Eastern Europe to Asia
By Clarissa Oon, Senior Political Correspondent
THE next six months will be especially tough for Singapore as there is worse to come in the global economy, Prime Minister Lee Hsien Loong told employers and unionists yesterday.
The US economy is sick, Western Europe has its own problems and Eastern European economies pose another danger because they have borrowed too much in foreign currencies from Western European banks.
If Eastern European economies crash, 'it's a big problem for the European banks who are exposed to Eastern Europe, (and) it's a problem for Asia too because these same European banks are very active and big lenders in Asia'.
The domino effect from Eastern Europe would be another example of 'something far away...coming back to our part of the world' and affecting business here, he said in a speech at the NTUC Centre.
One sector which has already felt the effects of such a chain reaction is manufacturing, which makes up a quarter of Singapore's gross domestic product.
Almost everything Singapore produces is exported, so with exports down by a third due to falling global demand, manufacturing also declines by almost a third and GDP goes down by one-twelfth, the Prime Minister noted.
Trade volumes are so dismal that 'containers are being shipped from China to Europe for free' and two-thirds of the cranes at the Port of Singapore Authority are sometimes standing idle, he added.
The financial crisis has created a global industrial crisis, the latest issue of financial news weekly The Economist reported. Industrial production has fallen year-on-year by 13.8 per cent and 16.4 per cent in the United States and Britain respectively.
'Half-empty freighters are just one sign of a worldwide collapse in manufacturing,' said The Economist, which observed that half of China's 9,000 toy exporters have gone bust and that Taiwan's shipments of notebook computers fell by a third last month.
Mr Lee noted that Asian economies have been badly affected by the crisis, putting paid to Singapore's initial hopes that 'Asia, further away from ground zero, would be immune'.