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Singapore - Economy

Singapore’s economy has continued to perform well. Growth recovered to 3.9 percent in 2013, from 2.5 percent in 2012. Net exports accounted for almost half of the growth, while private and public consumption contributed the other half. A rising trade surplus pushed up the current account of the balance of payments to 18.3 percent of GDP in 2013, from 17.5 percent of GDP in 2012. A series of targeted, escalating macroprudential policies contributed to cool the housing and car permit markets. This helped push down headline inflation to 2.4 percent on average in 2013, from 4.6 percent in 2012.

Singapore’s financial markets absorbed bouts of volatility associated with expectations of US tapering and the spike in global risk aversion early in 2014 with limited impact. While corporate loan growth remained firm, housing loan growth moderated, aided by the June 2013 launch of the new total debt servicing ratio framework (TDSR) and the expectation of higher interest rates in the medium term. Property prices leveled off and housing transactions moderated. The nonperforming loan ratio of domestic banks remained stable at about 1 percent.

Growth decelerated in the first two quarters of 2014 and was expected to moderate to around 3 percent during 2014-2015, narrowing the positive output gap. Recovering demand in advanced economies was likely to be offset by the ongoing real appreciation of the dollar and the gradual tightening in global monetary conditions. Meanwhile, the planned further slowing inflow of foreign workers, as part of the ongoing economic restructuring, could moderate potential growth and lower competitiveness. Core inflation was projected to average about 2.4 percent during 2014-15, reflecting relative price adjustments to facilitate the ongoing economic restructuring.

The medium-term outlook would be shaped by the success of the authorities’ ongoing economic restructuring program and policy responses to the rapid pace of population aging. Potential GDP growth was projected to slow in the next few years on slower labor force expansion, and then recover gradually as faster labor productivity growth takes hold, reaching about 3¼ percent in the medium term—well below the pace during 2000-08. A tighter labor supply due to a slowing inflow of foreign workers in the near term and population aging in the medium term would boost wages. With productivity gains unlikely to fully compensate, core inflation would increase temporarily and — together with continued nominal appreciation of the dollar — push up the real effective exchange rate, dampening export growth, and contributing to a gradual narrowing of the current account surplus over the medium term.

Singapore's strategic location on major sea lanes and its industrious population have given the country an economic importance in Southeast Asia disproportionate to its small size. Upon independence in 1965, Singapore was faced with a lack of physical resources and a small domestic market. In response, the Singapore Government adopted a pro-business, pro-foreign investment, export-oriented economic policy framework, combined with state-directed investments in strategic government-owned corporations.

Singapore is the world’s third largest oil refining and trading center, and has long been a global hub for oil refining and a cost-competitive location for highly integrated, world-scale petrochemical plants. Jurong Island, created in the 1990s by merging some seven smaller islands, houses some of the world’s biggest names in the petroleum and petrochemicals industries. Companies like ExxonMobil, Shell, ChevronTexaco, BASF, Sumitomo Chemical and Mitsui Chemical are based on Juorng Island. Singapore also plays a dominant role in the specialty chemicals industry, in the area of lube and fuel additives, consumer care specialties, electronic chemicals and materials, polymer additives, and coatings and inks.

Singapore's economic strategy proved a success, producing real growth that averaged 7.9% from 1965 to 2009. The worldwide electronics slump in 2001 and the outbreak of severe acute respiratory syndrome (SARS) in 2003 dealt blows to the economy, but growth bounced back each time, driven by world demand for electronics, pharmaceuticals, other manufactured goods, and financial services, particularly in the economies of its major trading partners--the United States, the European Union, Japan, and China, as well as expanding emerging markets such as India. The global financial crisis of 2008 and 2009 had a sharp impact on Singapore's open, trade-oriented economy. Singapore saw its worst two quarters of contraction in late 2008 and early 2009, but quickly recovered with strong performance in later quarters. The official growth forecast for 2010 is between 13% and 15%.

Singapore's largely corruption-free government, skilled work force, and advanced and efficient infrastructure have attracted investments from more than 7,000 multinational corporations from the United States, Japan, and Europe. Also present are 1,500 companies from China and another 1,500 from India. Foreign firms are found in almost all sectors of the economy. Multinational corporations account for more than two-thirds of manufacturing output and direct export sales, although certain services sectors remain dominated by government-linked companies.

Manufacturing (including construction) and services are the twin engines of the Singapore economy and accounted for 26.3% and 69.1%, respectively, of Singapore's gross domestic product in 2009. The electronics and biomedical manufacturing industries lead Singapore's manufacturing sector, accounting for 30.6% and 20.8%, respectively, of Singapore's manufacturing output in 2009. To inject new life to the tourism sector, the government in April 2005 approved the development of two casinos that resulted in investments of more than U.S. $5 billion. Las Vegas Sands' Marina Bay Sands Resort opened for business in April 2010, while Genting International's Resort World Sentosa opened its doors in February 2010.

To maintain its competitive position despite rising wages, the government seeks to promote higher value-added activities in the manufacturing and services sectors. It also has opened, or is in the process of opening, the financial services, telecommunications, and power generation and retailing sectors to foreign service-providers and greater competition. The government also has pursued cost-cutting measures, including tax cuts and wage and rent reductions, to lower the cost of doing business in Singapore. The government is actively negotiating eight free trade agreements (FTAs) with emerging economic partners and has already concluded 18 FTAs with many of its key trade partners, including one with the United States that came into force January 1, 2004. As a member of the Association of Southeast Asian Nations (ASEAN), Singapore is part of the ASEAN Free Trade Area (AFTA), and is signatory to ASEAN FTAs with China, Korea, Japan, India, and a joint agreement with New Zealand and Australia. Singapore is also a party to the Transpacific Strategic Economic Partnership Agreement, which includes Brunei, Chile, and New Zealand.

Singapore's total trade in 2009 amounted to $513.9 billion, a dip of 19.4% from 2008. In 2009, Singapore's imports totaled $245 billion, and exports totaled $269 billion. Malaysia was Singapore's main import source country, as well as its second-largest export market, absorbing 11.5% of Singapore's exports, after Hong Kong (11.6%). Other major export markets include the United States (6.5%), China (9.7%), and Indonesia (9.7%). Singapore was the 13th-largest trading partner of the United States in 2009. Re-exports accounted for 48.9% of Singapore's total sales to other countries in 2009. Singapore's principal exports are petroleum products, food and beverages, chemicals, pharmaceuticals, electronic components, telecommunication apparatus, and transport equipment. Singapore's main imports are aircraft, crude oil and petroleum products, electronic components, consumer electronics, industrial machinery and equipment, motor vehicles, chemicals, food and beverages, electricity generators, and iron and steel.

Singapore continues to attract investment funds on a large scale despite its relatively high-cost operating environment. The United States leads in foreign investment, accounting for 11.2% of new actual investment in the manufacturing sector in 2008. As of 2009, the stock of investment by U.S. companies in the manufacturing and services sectors in Singapore reached about $76.86 billion (total assets). The bulk of U.S. investment is in electronics manufacturing, oil refining and storage, and the chemical industry. About 1,500 U.S. firms operate in Singapore.

The government also has encouraged firms to invest outside Singapore, with the country's total direct investments abroad reaching $210.7 billion by the end of 2008. China was the top destination, accounting for 16.2% of total overseas investments, followed by the United Kingdom (8.4%), Malaysia (8.2%), Hong Kong (6.9%), Thailand (6.3%), Indonesia (6.1%), Australia (5.8%), and the United States (5.0%).

As of June 2010, Singapore had a total labor force of about 3.053 million. The National Trades Union Congress (NTUC), the sole trade union federation, comprises almost 99% of total organized labor. Extensive legislation covers general labor and trade union matters. The Industrial Arbitration Court handles labor-management disputes that cannot be resolved informally through the Ministry of Labor. The Singapore Government has stressed the importance of cooperation between unions, management, and government ("tripartism"), as well as the early resolution of disputes. There have been no strikes since 1986.

Singapore has enjoyed virtually full employment for long periods of time. Amid slower economic growth in 2003, unemployment rose to 4.0%. As of the end of June 2008, the unemployment rate was 2.2%. In tandem with the global economic crisis and the economy's contraction, unemployment as of end-September 2009 rose to 3.3% and resident unemployment reached 4.8%. However, the overall and resident unemployment rate dipped to 2.2% and 3.2%, respectively, in June 2010 in view of the Singapore Government's job-saving measures and gradually improving global economy. Overall, some of Singapore's unemployment is attributable to structural changes in the economy, as low-skill manufacturing operations have moved overseas. Since 1990, the number of foreign workers in Singapore has increased rapidly to cope with labor shortages. Foreign workers comprise 35% of the labor force; the great majority of these are unskilled workers.

Situated at the crossroads of international shipping and air routes, Singapore is a center for transportation and communication in Southeast Asia. Singapore's Changi International Airport is a regional aviation hub served by 80 airlines. A third terminal opened in January 2008, and a dedicated low-cost terminal for budget airlines has operated since 2006. The Port of Singapore is the world's busiest for containerized transshipment traffic. The country also is linked by road and rail to Malaysia and Thailand.

Telecommunications and Internet facilities are state-of-the-art, providing high-quality communications with the rest of the world. Singapore is rolling out a nationwide broadband network that promises high-speed Internet connections at lower prices. Sixty percent of the country is scheduled to be covered by the end of 2010. Radio and television stations are all ultimately government-owned or government-linked. The print media is dominated by a company with close ties to the government. Daily newspapers are published in English, Chinese, Malay, and Tamil.