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Singapore GDP will take hit from haze as countries issue travel warnings

A speed boat passes near the haze shrouded Sungai Johor Bridge in Malaysia's southern state of Johor Oct 6, 2015.

[KUALA LUMPUR] As Singapore and Malaysia wheeze from cloying smoke generated by forest fires in Indonesia, the costs to tourism and health and productivity in the two countries could be outweighed by the impact on Indonesia itself - and the country's regional reputation.

"The damage this time when the haze finally runs its course is expected to be high,"  said Euston Quah, a professor and head of the economics division at Nanyang Technological University, who has studied recent fires and plans to look again at all the affected countries, including Indonesia.

"We must continually estimate and show the damage is not only to Singapore, Malaysia and other neighbouring countries, but also to Indonesia itself, which includes the loss of goodwill. The damage to Indonesia must be huge. " 

The strongest El Nino in two decades may prolong the dry weather, which means the hazy conditions could remain for some time longer.

The smog has shrouded Singapore and Malaysia for weeks and is likely to manifest in fewer tourist arrivals as some countries are starting to send travel warnings about the two countries, which might impact hotels and retail spending, according to Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore. 

He estimates the impact on Singapore could range from 0.1 per cent to 0.4 per cent of gross domestic product, depending on whether the haze lasts for one month or three.  "The health costs might rise exponentially if the haze worsens and persists for a long period," he said.

The worst haze in 1997 cost Singapore US$300 million, while a milder event in 2013 led to about US$50 million of losses to retailers, hotels, tourism and the economy overall, according to Prof Quah's research.

The impact may go beyond tourism to impact the broader economy.

A protracted and severe haze may delay construction projects and slow factory output, according to Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd.