Global economy in deep trouble

Opinion from Singapore Economists of CIMB

The unprecedented step by central banks from Asia, Europe to North America to slash their benchmark interest rates is an indication that the global economy is in deep trouble.

On the heels of rising risks of a global recession, we are revising our macro assumptions for China, Hong Kong and Singapore for the next two years.

The financial-sector meltdown has spread and this downturn will be unlike previous downturns, in that it is expected to have a material knock-on impact on private consumption.

For Singapore and Hong Kong, their ratios of exports of goods and services to GDP are 2.5% and 2.1 respectively, the highest in Asia.

Therefore, a consumer-led global recession is going to have a more significant drag on their GDP.

For China, further fiscal and monetary loosening may still keep its GDP growth in the 6-8% region over 2009-10, whereas we are forecasting GDP contractions of 3-5% for Singapore and Hong Kong in 2009, and contractions of 2-3% in 2010, assuming the worst case of a deep recession in OECD economies.

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