Introduction

The euro zone crisis has intensified after the recent Greek election. There are significant
downside risks to the euro area and the crisis is expected to peak in the second and third quarters.
Moreover, it has forecast euro zone GDP growth rate at -0.6%for 2012.One tipping point is a
decline in Asian exports to the point where firms are forced to cut capex and jobs. The other will
be when finical markets melt down; eroding wealth and confidence the growth side of Europes
crisis has a profound impact on the global economy. In 2012, GDP growth will weaken the most
in those Asian economies that are most exposed to exports and have large financial hubs-namely
Hong Kong, Malaysia, Singapore, Taiwan and Korea. (Nomura, 2012).
Furthermore, the economies of Asia, both the emerging markets and the more developed
countries, are being hit by a double whammy of slowing domestic growth and the impact of the
European debt crisis on Asian exports and finance. (Asia Strains under Euro Crisis, 2012). The
main impact on Asian trade could be dramatic as Europe buys about a third of the regions valued
added exports because export growth from Asia drop when the growth in the euro area drops to
zero.
In my essay, I will discuss about one of the Asian countries that are Singapore which also face
the economics risks from the euro zone crisis.
Effects of euro zone crisis on Singapore
The Singapore economy has evolved from a trade- and commerce-based
economy into an industry and service oriented one. Moreover, the Singapore
government has actively promoted export-oriented industries, with emphasis
on high technology and value added goods because of the lack of natural
resources and limited domestic market size. (Moy, 1997, p.1). Singapore's
principal

exports

are

petroleum

products,

food/beverages,

chemicals,

textile/garments, electronic components, telecommunication

apparatus,

transport equipment. Its main exports partners are Malaysia, European

Union, Hong Kong and Indonesia.
Singapore is the EU's 13th largest trading partner trade in goods and the
EU's largest trading partner in the Association of South-East Nations
(ASEAN). Singapore's exports to the euro zone directly account for more than
12 per cent of its GDP, and private sector holdings of euro zone debt and
equities

are

the

highest

in

the

world

outside

of

Hong

Kong.

(Koh,2012).Singapores exports fell for the first time in three months in

January, 2012 on lower electronics and petrochemical shipments, as Europes
debt crisis crimped demand and the Chinese New Year holiday shortened the
working month.
In addition, euro zone banks also make up a bigger proportion of domestic bank lending in
Singapore than other Asian economies. Singapores banks recently posted healthy quarter one
earnings cementing their position as some of the worlds strongest and safest banks. While the
banking sector in Europe is showing worrying cracks under the strain of the euro zone crisis,
Singaporean banks are worlds apart.
However, there are a few dark clouds on the horizon. Asian banks are feeling the squeeze from
the euro zone crisis, which has damaged the global economic recovery. In addition, revenues in
Singapore are being tested with smaller loan business. Charge-off rates are also falling back to
their long-term averages, which means another income stream is shrink. Furthermore,
Singaporean banks exposure to Europe is mainly through interbank lending and governmentrelated entities.

Moreover, demands from Europe had also dipped and this had been affecting the various Asian
suppliers including SMEs in Singapore. The Singapore market in Europe worth hundreds of
millions is at risk. The market figures had already plunged drastically, from 16.4% in 2010 to 5%
in 2011(Department of Statistics Singapore, 2012). A domino effect is happening with problems
happening one after another. Tough times are ahead for all nations and if the crisis in Europe
2

worsens, a spiral effect may take place with the world going into a global recession. .
(Understanding the charge in Euro Crisis, 2012)
Conclusion
The causes of the crisis in the euro zone as overleveraging and overspending but a period of belt
tightening was necessary for Europe to survive the crisis. Then a year and a half into the crisis,
there is no effective fiscal disciplinary measures had been undertaken in Europe. Even Singapore
has been suffered by euro crisis; Chinas growth is still relatively robust. That is why Singapore
exports are not really down to zero. Moreover, Singapore also makes trading with US and
Singapores banks are in a healthy state and should be resilient enough to weather the economic
storms from Europe and our domestic market. There are the reasons Singapore economies are
stable even Singapore face substantial economic risks from the euro zone crisis.

References
Moy.A.C.L .(2012):The Business Guide To Singapore , Singapore: Reed Academic Publishing.
Normura, G.2012. Euro zone crisis to hit Asian economies and markets. The Economic Times,
Available at: http://articles.economictimes.indiatimes.com/2012-05-28/news/31869504_1_eurozone-gdp-growth-nomura [Accessed 30 Nov. 2012].
Asia Strains Under Euro Crisis. 2012. The Wall Street Journal, Available at:
http://online.wsj.com/article/SB10001424052702304821304577437902057067054.html
[Accessed 30 Nov. 2012].
Koh, P.2012.Singapore News. Channelnewasia , Available at:
http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1207646/1/.html
[Accessed 30 Nov. 2012].
Understanding the charge in Euro Crisis.2012.Loyal Reliance, Available at:
http://loyalreliance.com/understanding-the-change-in-euro-crisis-and-how-it-affects-you/
[Accessed 30 Nov. 2012].

Introduction
Inflation is commonly understood as a situation of substantial and rapid general increase in the
level of prices and consequent deterioration in the value of money over a period. It refers to the
average rise in the general level of prices and fall in the value of money. Inflation is a steady
increase in the prices of goods and services in a country, usually measured in terms of a specific
annual percentage. This decreases the purchasing power of currency by reducing the amount of
goods or services a person can get for the same amount of money. (What causes Inflation, 2012)?
When consumers and producers make most decisions that mold the economy, government
activities have a powerful effect on economy. The federal government guides the overall pace of
economic activity, attempting to maintain steady growth, high levels of employment, and price
stability. In my point of views, government plays a very active and important role in managing
an inflationary economy.
Causes of Inflation
Inflation is the devastating condition when prices just keep going up, eating away at your
standard of living. There are three main causes: demand-pull, cost-push, and monetary
expansion.
Among them, demand-pull inflation is the most common. It is simply when demand for a good
or service increases so much that it outstrips supply. For example, if sellers maintain the price,
they will sell out. They soon realize now have the luxury of raising prices, creating inflation.
Many circumstances can lead to demand-pull inflation. Moreover, a growing economy can create
some inflation, as people feel confident about the future and spend more. (Amadeo, 2012).
Cost-push inflation occurs when businesses respond to rising production costs, by raising prices
in order to maintain their profit margins. There are many reasons such as rising imported raw
materials costs that caused by inflation in countries that are heavily dependent on exports of
these commodities or alternatively by a fall in the value of the pound in the foreign exchange
markets, rising labor costs that caused by wage increases that exceed any improvement in
productivity. And higher indirect taxes imposed by the government that is a rise in the rate of
excise duty on alcohol and cigarettes, an increase in fuel duties or perhaps a rise in the standard
5

rate of value added Tax or an extension to the range of products to which VAT is applied.
(Macroeconomics,2012)
The last one, which is expansion of the money that is the money supply, is not just cash, but also
credit, loans and mortgages. When loans are cheap, then there will be too much money chasing
too few goods, creating inflation. The prices of just about everything will increase, even though
neither demand nor supply has changed. (Amadeo, 2012).
Important role of government
There has government economic objective are very important. It includes low unemployment
that is as many workers in jobs as possible, economic growth, which is the aim, is to produce
more goods and services each year so that individuals have a higher standard of living. Then the
last one, lower prices, which is continually rising prices is called inflation. Low inflation is also
an aim of government. (Role of government, 2012)
To manage inflation, the government can change the way business work and influence the
economy either by passing laws, or by changing its own spending or taxes. There is several
examples government that can control the inflation, which is extra government; spending or
lower taxes can result in more demand in the economy and lead to higher output and
employment. The one more is that government can pass legislation protecting consumers and
workers or restricting where business can build new premises. (Role of government, 2012)
Moreover, government can adjust inflation by managing taxes. There are several types of taxes.
First one is income tax that taken off an employee's salary. This results in less money to spend in
the shops. Value added tax (VAT) added to goods and services. A rise in VAT increases prices.
Corporation tax is a tax on company profits. A rise in this tax means companies keep less of their
profits leading to less company investment and the possible loss of jobs. National insurance
contributions are payments made by both the employee and the employer. They pay for the cost
of a state pension and the National Health Service. Local government collects rates from firms
and can use the law to block planning permission for new premises. (Role of government, 2012)

Conclusion
According to above reasons, government role in economy of the country is very important.
Government can control the inflation by adjusting the taxes and by using some rules and
regulations. In addition, inflation can happen a period and it will appear when the economy
growth increase. At that time, government needs to adjust dutifully.

References
What causes inflation? 2012. Wise Geek, Available at: http://www.wisegeek.com/what-causesinflation.htm [Accessed 30 Nov. 2012].
Amadeo, K.2012. What are the causes of inflation? US Economy, Available at:
http://useconomy.about.com/od/inflationfaq/f/Causes-Of-Inflation.htm [Accessed 30 Nov. 2012].
Macroeconomics. 2012.Tutor2u, Available at: http://www.tutor2u.net/economics/revisionnotes/a2-macro-causes-of-inflation.html [Accessed 30 Nov. 2012].
Role of government.2012. BBC news, Available at:
http://www.bbc.co.uk/schools/gcsebitesize/business/environment/stateofeconomyrev3.shtml
[Accessed 30 Nov. 2012].
Governments role in the economy.2012. Economics, Available at:
http://economics.about.com/od/howtheuseconomyworks/a/government.htm [Accessed 30 Nov.
2012].