Economic Impact Of Sars On The Singapore Economy

Topic: Impact of Severe Acute Respiratory Syndrome (SARS) on the economy of Singapore.

TABLE OF CONTENTS

1. Introduction to SARS Page 3

2. Impact on Export and Local Consumption Page 4

3. Impact on Employment and Wages Page 8

4. Impact on Government Expenditure Page 10

5. Impact on the Gross Domestic Product (GDP) Page 11

6. Conclusion. Page 14

7. References Page 15

Introduction to SARS

Severe Acute Respiratory Syndrome (SARS) first surfaced in Guangzhou, China, in November of 2002 and quickly spread throughout China, Asia and eventually to most parts of the world because of its transmission through close contact with anyone who has SARS. Studies concluded that it was transmitted to humans via the civet cat, which is eaten by the inhabitants in the Guangdong province of China, where Guangzhou is the state capital. By the time the epidemic was over, 8096 were inflicted with the disease, resulting in a total 774 deaths; of which 39 were from Singapore (www.who.int).

SARS affected the economies of many countries, especially in Asia. In the attached article, it mentioned that economies like Singapore and Hong Kong were most vulnerable as they are most dependent on tourism and business travelers amongst the affected countries. In addition, consumption is affected as mentioned by Jan Lambregts, Head of Asia Pacific Research at Rabobank, "the domestic component where people will go out less and spend less and that amounts to a pretty severe economic impact."

SARS also affected employment. Singapore's Manpower Minister Mr Lee Boon Yang said, "I would expect employment creation will be hard hit. If you look at the industries such as airlines, hotels, retail, food and beverages, they are all going to be hit."

In this assignment, using theories in macroeconomics, I will analyze in detail how SARS affected Singapore's economy.

Impact on Export and Consumption:

The biggest impact on the economy is on export and consumption. Major exports affected were from tourism and tourists related services, though exports in areas like manufacturing were also affected, it is marginal. The impact on consumption is centered on the change in consumption patterns of Singaporeans during the SARS period.

Impact on Export

The immediate impact on the economy was the sharp decline in tourism and related services - such as hotels, airlines, travel agencies - which contributes about S$7.8 billion or approximately 5 per cent of our total Gross Domestic Product (GDP) in 2002 (www.singstat.gov.sg). Month-on-month tourist arrivals dropped by 15 per cent in March and 67 per cent in April, resulting in a 30 per cent year-on-year decline compared to 2002; this greatly affected tourists' consumption in Singapore (www.stb.gov.sg).

Due to the decline in tourist arrivals, airlines and hotels suffered the largest drop in revenues. Hotel occupancy rate fell from 75 per cent in February 2003 to a low of 20 - 30 per cent in April 2003. A total of 34 airlines announced temporary cutback in flights to and from Singapore between March to June 2003, and passenger load at Changi Airport dropped by as much as 50 per cent while the number of flights handled declined by 17 per cent around the same period (www.mti.gov.sg). A number of conventions and exhibitions were cancelled, the largest being Broadcast and CommunicAsia, which draws as many as 23, 000 overseas visitors, that could have contributed millions of dollars to Singapore's tourism export (www.communicasia.com) and millions of dollars in revenue for local companies during the exhibition.

Similarly, the education services industry, which is a growing contributor to Singapore's export, was affected with fewer overseas student enquiries and even fewer enrolments during the period.

Companies are affected by the many Singaporeans who were quarantined to prevent the spread of the disease, due to probable exposure to an infected carriers; some companies even had to shut some of their production lines. As high value goods are generally transported via air, the cut in number of flights by airlines would have reduced available cargo space and have an effect on goods delivery, affecting exports. Although the manufacturing sector which contributes much of our export economy is not adversely affected, there were some spillover effects, but these effects are not easily measured due to the complexity of too many variables involved, the spread across a wide variety of industries and the short period which people were quarantined and some of the productivity lost could have been replaced by co-workers putting in more effort.

Impact on Local Consumption

The drop in consumption is largely contributed by a change in the consumption habits of Singaporeans during the SARS period. Due to the transmission pattern of SARS, compounded by the fact that the virus can survive in the environment for up to twelve hours, anyone can be infected simply by touching an infected surface in public areas, and use their hands to rub their nose or lips. This caused a panic among the general public and people shunned public places, like shopping malls, restaurants, food courts and hawker centers.

According to the Economic Survey of Singapore, published in the third quarter of 2003 by the Ministry for Trade and Industry, businesses in retail shops and food establishments decline by as much as 50 per cent in the months of March to May 2003. Even taxi companies are not spared, Comfort Taxi, the largest taxi operator in Singapore reported that daily bookings dropped from an average of 28,000 before the start of SARS to 18, 600 in April 2003, and the average daily income of taxi drivers dropped from $68.00 to $41.50 during the same period (www.mti.gov.sg).

Another factor that contributed to the drop in consumption is the proposed wage freeze, wage restructuring and wage cut made by the National Wage Council (NWC) in May 2003; this will be discussed