Covid-19’s Economic Impact on Singapore: Households and Companies Affected in Two Industries
In light of Covid-19’s economic impact on Singapore, it is key to understand how changing market prices would affect us as a nation. Households fear a rise in food prices since Singapore heavily relies on imported food, while Singapore’s main export driver, the machinery and transport equipment industry, could see prices decline. Given Singapore’s weakened exchange rate after Singapore’s central bank had eased its policy stance, how would households and companies be affected? Chua Yeow Hwee and Dave Chia Guo Cong (NUS Department of Economics) investigate the changing prices of Singapore’s imports and exports in the Straits Times in ‘From sashimi to Toyota: How currency changes affect S’poreans’.
For this study, Chua and Chia utilised data on trade prices and nominal effective exchange rates from the Department of Statistics (SingStat) and the International Monetary Fund. In the food and live animals industry, they found that exporters seemingly benefit more than consumers. Foreign countries could pay significantly less for Singapore’s exports such as spices, coffee, and tea, given the weakened Singapore dollar. This means that Singapore’s food export companies benefit from greater price competitiveness. Conversely, every 1 percent weakening of the Singapore dollar could raise imported food prices by 0.27 percent, rendering food like sashimi from Japan slightly more costly for consumers.
Imported food like sashimi could become slightly more expensive, but Singapore’s consumers could be far more impacted by prices in the machinery and transport equipment industry. For instance, Toyota cars could see a 0.58 per cent rise in prices, for every 1 percent in which the Singapore dollar weakens. This is more than double the rise in prices of imported food and live animals.
However, Chua and Chia argued that imported inflation will likely be mitigated by lower worldwide demand for machinery equipment during uncertain times. Therefore, imported inflation should not leave Singaporeans worried. Besides, Singapore’s economic outlook could be bolstered by the rise in overall export value in machinery and transport equipment. Given the weakened Singapore dollar, foreigners could pay significantly less for Singapore’s exports such as aircraft parts, integrated circuits, and turbines. This renders Singapore’s exports in machinery and transport equipment more price competitive.
Moving forward, Chua and Chia stress that understanding how changing market prices of sashimi and Toyota cars affect Singapore is only a first step. Given Covid-19’s impact on Singapore’s economy, the government has appropriated policies to manage uncertainties in trade prices and economic growth. However, there are diverse impacts in different industries, which require further study.
Read the full article here.