1st half 2009 mas report (25 apr)_edited

8/6/2019 1st Half 2009 MAS Report (25 Apr)_EDITED

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6C35: Kristal, Sarah, Geok Hian

Oct 2009 H1 2009 Global Rebound in Q2External events SignificanceIn Japan-Export growth, bolstered by robust regional demand-Increase in government spending

To sustain consumer spending, boost business confidence.Firms start to invest after six quartersof declining investment in Japan. (Injections intoeconomy)

G3 economies

-Impact of the financial crisis felt most strongly in Q1 2009

1. Credit constraints and heightened uncertainty following the increase in

unemployment caused a crisis of confidence

2. Governments then rapidly implemented extraordinary fiscal and monetary

policies to stabilise the financial system, ease credit conditions and support final

demand.

-GDP fell by 3.5%

Resulted in a sharp contraction in household and business spending.

Eurozone economies

-Benefited from the global recovery via the export channel

-Domestic demand remained unenthusiastic given high unemployment, and growth

faltered in Q4 2009 and Q1 2010.

-Concerns over the potential default of sovereign and quasi sovereign debt

(government debt) began to surface towards the end of 2009 and escalated in May

this year.

As a result, risk premiums rose and remain elevated for the most fiscally fragile

industrialised countries. In order to calm markets, a package of mea sures was

introduced by the European governments, the European Central Bank (ECB) and the

International Monetary Fund (IMF), whilst at the same time the affected countries

committed themselves to fiscal consolidation plans.

In USACentral Banks adjusted intere st rates, the US$ 3-month LIBO R-OIS1 spread narrowed to9 bps (basic points) from more than 100 bps [dropped from 1% to 0.09%)

Prevented US commercial paper market from c ontracting further, paved the way for aturnaround in the US, the epicentre of the financial crisis, and other developedeconomies.

The US

-GDP has expanded by an average of 3.5% from Q3 2009 to Q1 2010.

-Personal consumption rose strongly over the same period, stimulated by inc reasing

household net worth, government spending, and, as of Q1 2010, an improving

labour market.

Since demand seems to be stabilising, businesses have begun to replenish

inventories and invest in equipment and software.

Comment [t1]: For countries with high debt

(relative to their GDP, e.g. PIGS countries. They have

to pay higher interest rates on their govt bonds

issued



Domestic events SignificanceIn Q2 2009, alongside a surge in pharmaceutical output, the economy rebounded, drivenby two transitory global forces:1. Pickup in industrial output as firms replenished inventories which had been rundown earlier2. The improvement in credit and financial market conditions.

Accounted for the turnaround in Singapores traderelated industries and asset market activities

Since the turn of 2010, GDP growth has further broadened away from manufacturingand other trade-related industries to other sectors in the economy such as businessservices.

Risk diversification to reduce volatility of GDP

In the 12 months to March 2010-All of the output lost during this recession had been recovered, with GDP expanding byan average of 17% each quarter- Increasing evidence of a return in global private demand for information technology(IT) products, as well as a resumption of tourism activities

GDP contraction for 2009 as a whole was milder than expected a t -1.3% and theeconomy is currently on track to register a strong expansion in 2010.

Job creation resumed in Q3 2009 after two quarters of net losses

The CPI, which had fallen sharply in H1 2009 against the backdrop of lower globalcommodity prices and reduced business costs, turned around rapidly and rose over thenext three quarters due to elevated utility and fuel costs, as well as higher car prices. Forthe whole of 2009, CPI inflation came in at 0.6%.

Comment [t2]: Due to the past efforts at

diversifying the Singapore economy. Read the file

MainIndicators_AES_2010 to see the make-up of

the Singapore economy.



1(b) Economic characteristics/ prevailing conditions that influenced the impact of these events on the Singapore economy:

1) Foreign investments, foreign MNCs producing in Singapore

Global Recovery Increase in purchasing power Increase in consumption Increase in AD in economy Increase in business confidence

Increase in Expected Net Rate of Returns Increase incentive to invest Increase in foreign investment and foreign MNCs producing in Singapore

Increase in real national output Increase economy growth (Assume economy is not at full employment)

2) Total labour force (2.37 million, June 2005): Resident labour force expanded at quicker pace of 2.0% per annum (growth rate higher for females than

males)

Global Recovery Increase in purchasing power Increase in consumption Increase in AD in economy Shortage develops Firms face unplanned

disinvestment employ more factors of payment Employ more workers Decrease in unemployment r

esident labour force expands

3)

Dearth of natural resources, absence of agricultural sector

Global Recovery I

ncrease in consumption Increase in AD Firms face unplanned disinvestment Firms employ more FOP Increase in AS

Equilibrium Px drops Cheaper Import (especially in terms of food) Cheaper goods and services Increase consumption of goods I

ncrease in MPC

Increase in multiplier value Increased injections into the economy boost economic growth

Comment [t3]:Wrong. Fall in unemployment is

not the same as labour force expanding.

Read the definition of labour force and

unemployment rate.

Comment [t4]: Serious conceptual errors below.

Pls see me asap.

Comment [t5]:Why? Whats the link between

global recovery and consumption? Consumption in

which country?

Comment [t6]:Why does AS change?!?!

Changes in AD and AS dont directly change one

another!

Comment [t7]:Why does MPC change!?

Learn to distinguish C rising and MPC rising.



1(c)

1.

Increase in government spending > Increase in consumption > Increase in AD > Firms face unplanned disinvestment > Increase fa ctors of production > Multiplier effect for

each successive round of inputs until J=W > Increase in real national output > Increase in economic growth rate.

Increase in government spending > Increase in consumption > Increase in AD > A ssuming aggregated supply kept constant, shorta ge develops > firms face unplanned

disinvestment > Upward pressure on GPL > High Inflation

Increase in government spending > Increase in consumption > Increase in AD > A ssuming aggregated supply kept constant, shortage develops > firms face unplanneddisinvestment > Increase factors of production > Employ more workers > Decrease in unemployment rate

2.

Decrease in US i/r Cost of borrowing decreases Firms have more incentive to invest, I increases Net expected rate of return increases AD increases Real national

output increases (assuming economy is not at full employment) Actual growth

Decrease in US i/r Cost of borrowing decreases Firms have more incentive to invest, I increases Net expected rate of return increases AD increases Real national

output increases (assuming economy is not at full employment) firms will increase production in the next time period increase in demand for workers decrease in

unemployment rate Low unemployment more people employed Increase in purchasing power C increases increase in AD increase in GPL inflation (level of

inflation depending on the nature of the economy- for eg. High inflation when the economy is at full employment)

3.

Outbreak of H1N1 influenza strain (swine flu) > People go out less for fear of catching the influenza > C decreases > AD decr eases > Firms face unplanned investment > In

the next production cycle, firms produce less > Fewer factors of production employed > Unemployment rate increases > Less competition for FOPs > AS exceeds AD > Prices

for FOPs decrease > Deflation

At the same time,Outbreak of H1N1 > Demand f or treatment (drugs) increases > Demand exceeds supply, thus creating a shortage > Firms face unplanned disinvestment > In the next

production cycle, firms increase output > Employ more factors of production > Surge in pharmaceut ical output > Short run economic growth > Unemployment rate

decreases > More competition for FOPs > In factor market, AD exceeds AS > Prices for FOPs increase > Inflation

Comment [t8]: Err, whats this?

1st half 2009 mas report (25 apr)_edited

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