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Singapore: Economy bounces back, but…?

Author: Mukul G. Asher, NUS, Singapore The 2008 global crisis and its aftermath have not adversely impacted Singapore’s medium term growth performance



The 2008 global crisis and its aftermath have not adversely impacted Singapore’s medium term growth performance. After only 1.4 per cent growth in 2008, and negative 2.0 per cent growth in 2009, the economy rebounded strongly in 2010, with the most recent projected growth rate of 14.8 per cent. The cyclical upturn in the global demand has been a major factor in the strong rebound in 2010 with goods producing sectors, including electronics manufacturing, being the largest contributor.


The services sector was aided by the commencement of casinos during 2010. This is reflected in the projected S$300 million in collections from levy on Singapore residents who visit casinos. The projections are that Singapore’s gambling market could exceed that of Las Vegas by end 2011.

2010 growth was primarily external demand driven, with Singapore’s non-oil exports increasing by 24 per cent in 2010. Singapore’s strong fiscal position did however also permit strong fiscal stimulus measures in recent years. Planned infrastructure spending, including S$60 billion over the next decade in expanding transportation network, suggests that this fiscal stimulus was used to strengthen Singapore’s position as a global city. In 2010, the CPI inflation was 2.8 per cent, while tight labour markets were reflected in the low unemployment rate of 2 per cent.

Projections for 2011 suggest significant moderation in growth (to around 5 per cent); acceleration in CPI inflation (to between 3.5 and 4.0 per cent), but a slightly lower unemployment rate. External demand is expected to be less robust due to anticipated lower growth in the US, EU, and Japan, but Singapore is expected to partly offset this because of projected high growth rates in ASEAN, China, and India. It is likely that there will be acceleration in inflation, particularly in the food and housing sub-sectors, tightening of monetary policy, and further appreciation of the Singaporean dollar. Further, Singapore has already attempted to diversify its economy and establish several niche areas, including education, wealth management, and entertainment. This flexibility will assist Singapore to continue to add to its growth and resilience.

There are several challenges that policymakers need to address.

The first is demographic. In the coming decade, Singapore’s population will age rapidly. Its Total Fertility Rate (TFR) has stubbornly stayed between 1.2 and 1.3:, with zero net in-migration, this means that population will halve in 45 years. Instead of addressing demographic changes through constructing robust social safety nets which are affordable, Singapore has relied on foreign manpower, particularly at the lower-paid end of the workforce, but also in the area of skilled labour, to sustain growth. Predictably, the share of foreign workers within the total labour force has already exceeded one-third, and at current rates, could exceed 50 per cent in coming decade. This policy, along with liberal provisions for the grating of Permanent Resident and Citizen status, and rising inequalities even when only employment income is considered, has created a strong need for political management. But currently, amongst policy-makers, the preference for growth over other objectives is strong, and low political contestability means that it is difficult to conduct a debate on this issue.

The demographic challenge is compounded by Singapore’s inability to improve productivity significantly under current social and economic arrangements, and a relatively low labour force participation rate for women. Unlike in the OECD countries, labour force participation rate for women in Singapore begins to decline in the late 20s. Usually, ageing societies use these two avenues (along with moderate use of foreign labour and off-shoring) to mitigate the negative impact that rapid ageing has upon growth. In Singapore, however, labour productivity fell from 3.1 per cent annually during the 1990s to 1.3 per cent annually during the 2000- 2009 period.

The indications are that the next general election will be held before the next governing party meeting in November 2012. The timing will be influenced by how the ruling party thinks the voting public perceives the policy responses to these challenges. More broadly, the extent to which Singapore succeeds in addressing the demographic and productivity challenges will be critical to the economic and political outlook in the medium and longer term.

Author: Mukul G. Asher, NUS, Singapore

Mukul Asher is a Professor of Public Policy in the Lee Kuan Yew School of Public Policy at the National University of Singapore.

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