It is certain that the Greek crisis will undermine aggregate demand and, therefore, trade flows – directly and, more importantly from a global perspective, by imparting an additional fiscal drag to other European countries.
This will strengthen the structural headwinds that are already weakening what has been a robust global cyclical recovery. It will also complicate the much needed handoff from temporary drivers of growth (government stimulus and inventories) to more sustainable ones (components of private final demand).
This is most consequential for countries that export heavily to the eurozone. Some are neighbouring countries, such as Norway, Sweden, Switzerland and the UK. Others are further away, such as Singapore* and Russia.
The writer is chief executive and co-chief investment officer of Pimco, Mohamed El-Erian. This is part of a longer commentary published in the FT.
*Background on trade between EU and S’pore from EU websites
The ASEAN countries together are the EU’s third largest trading partner outside Europe, with annual bilateral trade in goods and services of some € 175 billion. Almost a third of this trade takes place between the EU and Singapore (€ 55 billion) which makes Singapore by far the EU’s most important trading partner in South East Asia. The EU and Singapore also have strong investment ties; the bilateral stock of investment has reached € 100 billion in 2007.
n 2006 the EU was Singapore’s 2nd largest trading partner after Malaysia. The EU accounts for 11.3% of Singapore’s total external trade, purchasing 11.1% of Singapore’s exports and providing 11.4% of its imports. These figures put the EU ahead of the US, China and other ASEAN members (except Malaysia). In 2006 EU-Singapore overall merchandise trade amounted to S$91.2 billion, a 40% increase from its 2003 level of S$65.1 billion.