It’s been nearly a decade since the global financial crisis swept through markets across the world. In the United States, President Donald Trump has advocated weakening the rules that were established in the wake of the crisis, while other world leaders warn against turning back. Global Network Perspectives asked experts across the world about the risk of financial instability in their countries and regions.
Countries like Ireland and Singapore are always subject to financial and economic disruption due to events beyond their borders, even if they do everything right at home.
Among the risks facing Singapore (and much of the world) are the possibility of an economic slowdown in China, and the rising tide of protectionist sentiment around the world. Singapore was to be part of the Trans Pacific Partnership Agreement. Although this agreement had been criticised as a political attempt by the United States to reduce the power and influence of China, it was to be the largest free trade deal in history. However, as of one the first actions of the new Trump administration, the US withdrew from the agreement. The remaining countries have agreed to press forward anyway, but the agreement will have much less of an impact without a country with such a large economy.
If trade links with the US are not to grow as much as we might have hoped, perhaps China will take up the slack. China has been experiencing a gradual economic slowdown (although even that “slowdown” leaves it with an economic growth rate that most countries would love to have). In recent decades, China experienced an extraordinary run of strong economic growth, and has probably had the largest reduction in extreme poverty in the history of the world. It was not reasonable to expect this rate of growth to go on forever, but if the rising debt levels in China eventually result in a sharp rather than gradual slowdown, the repercussions will be felt in Singapore and around the world. Not only trade in products, but tourism and other industries will suffer.
In the finance industry specifically, aggressive extraterritorial regulation (primarily by the United States, but this pernicious trend may spread) has the potential to cause problems for an international financial centre like Singapore. However, there may be opportunities as well as dangers. For example, Singapore could benefit if it successfully woos financial firms looking to leave London as a result of the "Brexit" from the European Union.
Ireland is a relatively small country with an open economy. Even if the government and the people do everything right, there is always a risk of disruption due to events outside of its borders, since there are substantial trade and investment ties with other countries.
Ireland was hit hard by the recent financial crisis, and required a substantial bailout from the European Commission, the European Central Bank and the International Monetary Fund (the “troika”). However, it is recovering, exhibiting economic growth in recent years. The “Celtic Tiger” of the 1990s and early 2000s is now sometimes called the “Celtic Phoenix,” due to this resurgence.
The biggest risk at this time is probably Brexit. Ireland has a long border with Northern Ireland, which is part of the UK, and trade ties between Ireland and not just Northern Ireland, but all of the UK, are strong, and nobody really knows what the terms of the Brexit will be. The EU are taking a hard line, that the UK cannot pick and choose which trade/labour mobility agreements they will participate in. The chances of a “hard Brexit,” in which the UK leaves the EU with no trade agreement in place, are substantial. The financial industry in Dublin could actually benefit from such a scenario, since Ireland and Malta are the only remaining English-speaking countries in the EU. Some London financial firms are already relocating staff and operations to Dublin, albeit on a small scale. However, the economic effects due to trade disruption are likely to be substantial and negative. There may be some possibility of disruption to emigration, which traditionally has functioned as a relief valve during poor economic times in Ireland, although free movement between Ireland and the UK predates the European Union and is likely to survive Brexit.
The Plato quote “only the dead have seen the end of war” is apocryphal, but only the dead have seen the end of financial and economic crises. These crises are quite common throughout history and around the world. The developed world had a good run of luck for about thirty years, but it is unlikely that the business cycle has been defeated.