Singapore vulnerable to a Greek Eurozone withdrawal

The fallout will plunge the local stock market, drive up short-term interest rates and weaken anew an already battered manufacturing sector.

Here's more from OCBC:

The big fat Greek divorce coming up? Financial markets are attempting to price in the possibility of a Greek exit from the Eurozone given its political uncertainties surrounding the inability to form a coalition government and the implications for the policy resolve to undertake necessary fiscal reforms in order to qualify for ongoing bailout funds from the troika of ECB, IMF and EU. Should a disorderly and chaotic exit by Greece materialize in near-future, this could impact market confidence and have contagion effects to financial markets and peripheral Eurozone economies.

The Eurozone barely escaped a technical recession in Q1 2012, as Germany beat market expectations to grow by 1.7% yoy (+0.5% qoq). However, a sustained Greek turmoil may tip the region into a more severe recession, and weigh down external demand. 

Asian growth, including Singapore is unlikely to be spared from the turmoil, especially if risk-taking activity is further deterred and accompanied by foreign fund outflows. This could represent renewed downside risks to our 2.7% growth forecast.

How will the Singapore economy be potentially impacted? The kneejerk impact will likely be through the financial transmission channel. Stock markets may reel from the shock, money markets may freeze up and short-term interest rates may spike should there be widespread panic over Eurozone counterparty risk and mark-to-market losses etc.

It is also not inconceivable that there could be some perceived settlement risk for Euro transactions in a worst-case scenario until there is clarity that the Euro will continue to function normally as a currency entity. Another hit to global trade could prove deleterious to global growth prospects.

From the real economy, manufacturing may take a hit through the export angle due to weaker Eurozone demand, while services may also be impacted by weakening confidence and consumption.