Is another full-blown economic meltdown brewing?

Here's how the economy stands compared to previous crises.

Recent volatile swings in global equities and escalating external uncertainties have triggered fears of another economic meltdown reminiscent of the Asian Financial Crisis (AFC) in 1997 and the Global Financial Crisis (GFC) of 2008.

But although recent market swings are spooky, DBS analysts believe that the chances of a full-blown economic crisis are extremely slim.

This is because Singapore's key economic indicators remain sound, highlighted by relatively low interest rates, gradual property price declines, marginally positive GDP growth and solid foreign reserves.

“While the current uncertainties in Asia are not seen as a GFC in the making, many investors are worried that it is reminiscent of the AFC with South-East Asia currencies’ recent slump against the USD. However, we think the probability of a full blown AFC in a similar magnitude is low,” DBS said.

During the AFC, the Singapore Interbank Offered Rate (SIBOR) shot up to an astonishing 9.5% in early 1998. The SIBOR climbed to a high of 3.5% in 2006 before the GFC, before tapering to about 1% in 2008/09.

At present, the SIBOR has risen above 1% for the first time since the 2008 GFC, but is still low compared to historical levels.

In terms of property, prices plunged by a whopping 50% in 1998 and a steep 25% in 2009. At present, 2Q15 prices are down 6.7% from their recent peak in the 3Q13, reflecting a gradual drop in property prices.

In terms of GDP growth, Singapore slipped into recession by mid-1998 during the AFC before recovering by the end of the year. In the GFC, Singapore registered 4 consecutive quarterly losses from mid 2008 to 1Q09, and rebounded strongly with 19.2% quarterly growth in 2Q09.

At present, year-on-year GDP growth remains positive at 1.8%, although the quarter-on-quarter figure booked its first negative growth of -4% in the second quarter. 

Although the SGD has weakened considerably against the greenback since the beginning of the year, DBS highlights that it is still far from its AFC/GFC levels.

The SGD tested a low of 1.42 against the US dollar this year, compared to 1.56 per US dollar in 2008 and 1.82 per US dollar in 1998.

“Our base view is that the current correction trough should test levels similar to the low during the Eurozone crisis. It can even exceed these troughs moderately as the current uncertainties are right here in Asia. However, the probability of a further collapse to the bear-case scenario of an AFC/GFC trough is low,” the report said.