Saturday, August 16, 2014

Singapore and her Recessions

I might be wrong, but from my quick research around the internet, I think Singapore has had only 4 recessions in her lifetime since the 1965!

Based on information from the Ministry of Trade and Industry, they said that Singapore went into recessions 4 times. They "consider a recession to be characterised by at least two consecutive quarters of negative GDP growth on a seasonally-adjusted basis and to have ‘ended’ when positive sequential growth in seasonally-adjusted GDP is observed.". If I am not wrong, their definition of a recession is the same as the EU and I think it is a pretty good way to start my research. (link to short observation of the 2008/9 GFC impact on Singapore's employment)

The 4 periods of recession were:

1st: 1984/85 Government policy induced recession
2nd: 1998 Asian Financial Crisis
3rd: 2001 Dot-com Bubble
4th: 2008/2009 Great Financial Crisis

Finding quarterly GDP data is a real challenge. From 2007 onwards, data is available from TradingEconomics. The easier way to tell is to look for 2 quarters of consecutive GDP growth under 0%.

From the graph above, I think it is quite clear to see how the 2008/2009 GFC recession produced 4 data points of negative GDP growth. Since then, we have had 3 close calls in 2010, 2011 and 2012. The economy looks to be at an important turning point now. Unfortunately, the quarterly data does not go back any further, though I wish it could. The next best data series is the annual GDP figures which you can also get from TradingEconomics or SingStat (look under Time Series).

One extremely interesting article I found was from a paper published back in 1998 regarding the forecasting of GDP using monthly trade statistics. Sounds nerdy much? It is. In the paper they mention the ADF test, ARIMA, MAPE and RSME, along with a lot of models. Not the bikini kind, but the graph kind. Math nerds, are you ready to get jiggy?

Perhaps the most interesting thing is the final graph that showed their forecast and overlayed with the actual GDP for that period. (page 7 for not lazy people, picture below for lazy people)

What I like about the forecasting model is that because monthly data is being used. Anyway, I think most people are totally not interested in these kind of things. I think I'll ask my Math major friend to take a look at this and maybe she could help me build this model?

One of the reasons why I wanted to blog about this is because it is always good to learn about history so that we know what we might expect from the future. That being said, Singapore has had quite a fortunate past to not have had so many recessions in her lifetime. With the last recession ending in 2009, we have been without a recession for almost 5 years now. Recessions in the US over the past 150 years usually occurred once or twice a decade.

Personally, with the rest of the other countries posting such horrible GDP numbers, along with so many structural problems with their economics, I feel a bit nervous. Add that to the fact that Singapore thrives based on global trade, we might be very badly affected this time around if people realize that the problems in today's world is systemic and a global recession is prolonged.

Whether you like it or not, Singapore will have a recession. Recessions are vital and essential for economics to purge away dying businesses and capital misallocation. The only question is will it come sooner or later? And what would you do when it comes?

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