Singapore, Malaysia face economic hit from prolonged smog

SINGAPORE Mon Jun 24, 2013 10:33am BST

Airplanes are seen at the Kuala Lumpur International Airport in Sepang, on a hazy day outside Kuala Lumpur June 24, 2013. . REUTERS/Bazuki Muhammad

Airplanes are seen at the Kuala Lumpur International Airport in Sepang, on a hazy day outside Kuala Lumpur June 24, 2013. .

Credit: Reuters/Bazuki Muhammad

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SINGAPORE (Reuters) - Singapore and Malaysia could face a bigger economic impact than from their worst air pollution crisis 16 years ago if slash-and-burn fires in Indonesia continue to rage in the coming weeks, turning off tourists and raising business costs.

Restaurants, tourist attractions and some other businesses are already feeling the pain as haze envelopes the Southeast Asian neighbors, from Singapore's upscale shopping districts to Malaysia's popular beach resorts.

The haze crisis in 1997 lasted about three months and cost Southeast Asia an estimated $9 billion from disruptions to air travel, health expenses and other business impacts. Economists and businesses say the costs are already mounting about a week since air pollution levels in the countries shot up to unhealthy and sometimes hazardous levels.

"The haze has definitely affected our business. Our sales fell around 40 percent in the past week," said Goo Wai Chien, who sells pizza and pasta at a hawker center in Singapore's business district. "But hopefully the situation is improving."

Much depends on how long the haze lasts and which way the wind blows the smoke that is coming mostly from fires set on palm oil plantations on Indonesia's Sumatra island. Singapore Prime Minister Lee Hsien Loong has said the haze, which eased over the weekend and on Monday in the city state, could last a few weeks or until the dry season ends in Sumatra in September or October.

Extinguishing the fires, which smolder deep within peat, depends almost entirely on levels of rainfall.

Irvin Seah, DBS economist in Singapore, said the overall impact could be worse than in 1997 if the haze drags on.

"In 1997, the level of pollution was not this severe, and on the other hand the tourism industry's contribution to the economy was relatively smaller back then."

Tourism makes up 6.4 percent of Malaysia's economy and about 5 to 6 percent of Singapore's. Analysts see that sector taking an immediate knock, even if they cannot quantify the damage.

"The impact will be negative," ANZ, a bank, said in a research report, referring to Singapore. "Shopping, restaurants, bars and outdoor entertainment will all suffer during this hazy period."

Hotels, restaurants and other hospitality businesses also benefit from Singapore's prominence as a center for industry meetings and trade shows.

TOURISM, HEALTH FEARS

Perceptions of Singapore, which usually enjoys clear skies and relatively little pollution, could be the biggest casualty if the smoke hangs over the island through September.

A conference this week on global nuclear issues with dozens of high-profile experts, including former U.S. secretary of state George Shultz and former secretary of defense William Perry, was postponed "due to increasingly hazardous weather conditions in Singapore", the organizers said.

"It would create a very negative impression and also deter tourist inflows. It would deter people thinking about moving to work in Singapore," said P.K. Basu, regional head of research and economics at Maybank Kim Eng.

Brokerage CLSA has estimated the damage to Singapore - a major financial center, aviation hub and tourism destination - could end up being hundreds of millions of dollars. Other analysts said it could top $1 billion.

Singapore and its $271 billion economy cannot afford a big hit from a prolonged pollution crisis or any loss of confidence.

The economy - which is dominated by services, followed by manufacturing and construction - was stronger than expected in the first quarter due to a surge in the financial sector.

But exports have been weak, especially electronics, and economists now expect growth of 2.3 percent this year, slower than the median estimate of 2.8 percent in March, according to the central bank's latest quarterly survey released this month.

Francis Tan, an economist at United Overseas Bank, said if the smog in Singapore extends until September, with pollution rising to unhealthy levels from time to time, it could shave 0.3 to 0.5 percentage points off his 2013 growth forecast of 3 percent. That would mean up to $1.2 billion in economic losses.

Among the biggest costs that businesses face from the haze is illness.

Hospitals and clinics in areas badly affected by haze in recent days had recorded a rise of more than 100 percent in asthma cases, Malaysia's director-general of health Noor Hisham Abdullah was quoted as saying by the Bernama state news agency.

Patients reporting other respiratory problems and conjunctivitis had also jumped, he said.

The Malaysian capital, Kuala Lumpur, was veiled in thick smog on Monday, a day after parts of the southern state of Johor declared an emergency as pollution readings rose above the hazardous level.

Cheah Tuck Wing, the executive director of the Malaysia-Australia Business Council, said companies in Johor - which has attracted growing investment from neighboring Singapore - were already seeing a rise in worker sickness.

"People are not well and it will definitely affect production, that goes without saying. It has definitely impacted business, especially factories where a huge number of people are working."

(Additional reporting by Anshuman Daga, Eveline Danubrata and Kevin Lim in SINGAPORE; Anuradha Raghu, Megha Rajagopalan, and Siva Sithraputhran in KUALA LUMPUR; editing by Stuart Grudgings and Nick Macfie)

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