The country selected for this task is Singapore. Even though it has a very small size but still it has developed as one of the Asian superpowers. It has an open economy which is heavily reliant on trade and foreign capital investments. The country boasts of stable macroeconomic indicators which enables high economic growth. It has third largest GDP on per capital basis in 2015 amongst all the countries in the world as it stands at $85,127. At the same time, the real GDP of the economy touched $ 470.55 billion while the estimated labour force stood at 3.63 million. Also, the unemployment rate is almost near natural unemployment rate with almost zero inflation. Services contribute to about 75% of the GDP while the remaining is mostly accounted by manufacturing. The country maintains a trade surplus with the exports being much higher than the corresponding imports. This is expected as the local population of Singapore is a limited market and hence in order to enable the economy to grow the products and services require foreign markets. Owing to the stable political system coupled with policies that are pro-investors, it has one of the largest FDI inflows not only in Asia but also the world which is noteworthy considering the otherwise small geographical area (Tan, 2015).
In the above backdrop, the objective of the current report is to carry out a review of the Singapore economy for the period 2005-2014 by taking into consideration selected macroeconomic indicators. These tend to span the key aspects of macroeconomics such as GDP growth, inflation, unemployment and tend to highlight the various measures taken by the government in order to facilitate stability and improvement in the above mentioned indicators.
This is highlighted through the real GDP graph for the given time period as displayed below (TradingEconomics, 2016).
The graph above indicates that the country has witnessed continuous growth in real GDP which has reached a maximum value of USD 306.34 billion for the year 2014. The resilience of the Singapore economy is apparent from the fact that even in 2009 when the impact of the global financial crisis was at the peak and trade was hit badly, the economy managed to grow even if marginally. Further, since 2010 the company has returned to the growth trajectory and has posted gains.
The real GDP growth rate graph for the period 2005-2014 in case of Singapore is as shown below (TradingEconomics, 2016).
It is evident from the above graph that the highest as well as lowest value of the GDP growth rate is primarily linked to the occurrence of GFC (Global Financial Crisis). The highest growth rate was witnessed in 2010 when the economy started improving from the crisis while the lowest growth rate was witnessed at the time when the GFC was at the peak in 2009. The growth fluctuations may be the result of the open economy which is integrated with the global economy and hence any major shocks in the global economy result in significant impact for Singaporean economy.
The GDP per capital for Singapore during the period 2005-2014 is indicated in the graph shown below (TradingEconomics, 2016).
The above graph clearly indicates that the GDP per capita tends to show an upwards trend for most of the period. It was only during the GFC (i.e. 2008 and 2009) when there was a deviation in this trend but since 2010, the trend is back on course again. The highest per capital GDP is observed in 2014 while the lowest value is as seen in 2005. Thus, this clearly signifies that GDP growth for a majority of the time period demonstrated above tends to be higher than the corresponding population growth rate which in turn leads to higher developmental standards.
GDP is defined as the monetary value of all the goods and services that tend to be produced inside the country in a particular time period usually a quarter or a year. While nominal GDP tends to capture the GDP computation using market price, real GDP computes the same using the base price only. Thus, real GDP ensures that GDP computations are not adversely impacted by the inflation rate. The real GDP growth rate refers to the alteration in real GDP using percentage terms. Per capita GDP may be computed by dividing the GDP by the total population of nation at a particular time which enables to highlight the change in the living standards of the people (Mankiw, 2012).
The government has taken a number of measures especially during the GFC in order to ensure that the economy can post a robust economic growth as has been witnessed in the attached statistics. It has ensured that businesses do not face any regulatory hurdles as a result of which, Singapore receives a significant amount of foreign capital. Also, the government has used fiscal policy as a tool to provide support to the ailing exports by providing them rebates and also allowing then to enhance the technology used. Besides, the government has actively invested in enhancing the skills level of people through quality education and healthcare infrastructure. Additionally, the nation offers low corruption and requisite infrastructure which has enabled the transformation into the present financial hub (Waring & Lewer, 2013).
The unemployment rate for Singapore during the time period 2005-2014 is indicated below (TradingEconomics, 2016).
It is apparent from the above graph that unemployment rate was the highest during Q3FY2009 which is on expected lines because of the GFC. Further, the economy witnessed the lowest unemployment rate just before the onset of financial crisis which began in 2008. In the recent times, it is apparent from the above graph that unemployment rate has stabilized to about 2% which is productive for the growth of the economy.
Unemployment refers to a situation when an individual who forms a part of the labour force is not able to get any work. This may be attributed to a host of reasons and based upon these, the unemployment may be either frictional, structural or cyclical.
Frictional unemployment occurs when a given individual makes a switch from one job to the other and which normally involves some period when the person in busy doing job hunting (Mankiw, 2012). Structural unemployment tends to occur when there is a fundamental alteration in the modes of production and underlying technology but the existing labour force lacks the skills required to be employed. In this unemployment, there is simultaneous presence of labour shortage and excess of labour available (Goodwin et al., 2013). The cyclical unemployment is caused as the business cycle tends to undergo the various fluctuations and based upon the level of the business activity, demand also changes (Weale & Christodoulakis, 2015).
Singapore is home to all the above types of unemployment highlighted as indicated below.
The labour force members are always on the llok out for better opportunities and hence they resign from their current jobs resulting in unemployment on temporary basis which is referred to as frictional unemployment (McTaggart, 2012).
There is prevalence of structure unemployment as well which may be explained due to the emphasis of the nation on continuously upgrading the technological base and also the underlying skill level. This requires high agility on the part of the labour force so as to upgrade their skills in line with the technology deployed in the industry of choice. But, the process of upgrading skills tends to take time and hence meanwhile results in structural employment (Pigou, 2013).
The cyclical form of unemployment also does exist in Singapore as it receives skilled migrants from neighboring nations of Asia. Hence, as the business cycle tends to change, the demand level also makes a shift and this has a significant impact on underlying demand for labour which results in creation of unemployment when the business cycle is in the trough stage (Tan, 2015).
The government aims to utilize the available manpower to the fullest and hence has taken a host of steps to ensure the same. In order to improve the productivity to labour, the fiscal policy is used as an enabler which tends to reward businesses marking increased productivity and also to foreign businesses which are keen to set up shop in Singapore resulting in lower cyclical unemployment Borio, 2014). TO continuously upgrade the skill sets of the people, government has launched programs such as Workfare Income Supplement (WIS) so as to tackle structural unemployment based issues (Wagner, 2014). Besides, in order to minimize the structural unemployment, the government has also initiated programs such as SPUR (Skill Program for Upgrading and Resilience) which enable skills upgradation of the people while they derive compensation as well. (Cho & Newhouse, 2013).
The below mentioned graph provides Singapore’s inflation trend during the financial year from 2005 to 2014 (TradingEconomics, 2016).
It is apparent from the above graph that before the global financial crises high value of inflation rate i.e. 7% had been observed in the year 2008. The inflation rate had significantly dropped down in the year 2010 and became -1%. Further, it can be seen from the graph that from 2010 onwards, no stable pattern has been followed by inflation rate. Post GFC, it started growing and reached a value of 5.8% in year 2012 which again decreased in 2014 and reached a value approximately zero.
Inflation is something that reduces the purchasing power of individuals and makes subsequent increase in the prices of different goods and services. Inflation results due to the significant change in the demand and supply (Simpson, 2012). The major factors of inflation are as highlighted below (Ghosh, 2013).
The case when the demand is much higher than the available supply would be termed as demand pull inflation. However, the case when the price increases due to the increase in the costs associated with the inputs is termed as cost inflation. In case of cost inflation the pressure of high price due to inflation is directly extended to the consumers (Gandolfo, 2013).
It has been observed that both demand pull inflation and cost inflation occurs in Singapore. The reason behind the demand pull inflation is due to the high number of population and respective income in the country because it results high demand for specific goods or services but scarcity in their supply. Further, in the short run, the supply cannot be increased much and thus, the cost associated with the products or services increases and results in demand inflation. Despite these facts, the supply also decreases especially on the imported goods, which causes a significant increase in the input cost and thus, leads to the cost inflation in the country (Ghosh & Yu, 2013).
For reducing the import dependence, Singapore’s monetary authority constantly tinkers with the exchange rate so as to provide support to exports The tinkering carried out by the monetary authority is essential in wake of the huge foreign money that finds its way in the economy and could potentially lead to higher inflation and appreciation of domestic currency (Bhaskaran, 2014). Also, a host of fiscal measures ae deployed by the government in the form of lower taxes along with subsidies on the import of various key items particularly food so as to keep the overall inflation within limit. Additionally, for the key import items, the government tends to rely on the long term contracts with the supplier nations which helps in containing price shocks to an extent (Das, 2014).
Conclusion
Based on the above discussion, it may be concluded that there was slight disruption caused in the GDP growth and employment with the onset of the GFC but the economy has responded strongly to such concerns and has returned to the pre-GFC trends in the various macroeconomic indicators. Further, it may be concluded based on the available data that the trends in macroeconomic data is hinting towards a healthy economy which is the reason for the rapid growth in the economy and the strong inflows of foreign capital. The resilience shown by the economy during the financial crisis is worth a praise considering the extent of dependence of economy on trade and the level of integration that the economy experiences with the global economy. However, post the GFC the economy has improved and become stronger and resilient to take a proactive stance against such crisis in the future. Besides, unlike other nations which in the post GFC era are grappling with slowdown or debt crisis, but in case of Singapore, the government it seems has done exceedingly well with the macroeconomic indicators assuming normalcy within a short period of 2 years from 2008. This clearly augers well for the future investors who would be keen to invest in a robust economy, which offers long term stability along with growth.
Reference
Borio, C. (2014). The financial cycle and macroeconomics: What have we learnt?,Journal of Banking & Finance, 45, 182-198.
Bhaskaran, M., (2014). Challenges Facing the Singapore Economy, Southeast Asian Affairs, 2014(1), pp.290-302.
Cho, Y., & Newhouse, D. (2013). How did the great recession affect different types of workers? Evidence from 17 middle-income countries, World Development, 41, 31-50.
Gandolfo, G., (2013). International Economics II: International Monetary Theory and Open-Economy Macroeconomics, Springer Science & Business Media.
Ghosh, A. and Yu, J., (2013). Singapore Inflation Expectations: Expecting the Unexpected, Sim Kee Boon Institute for Financial Economics, Lee Kong Chian School of Business, Singapore Management University.
Goodwin, N., Nelson, J., Harris, J., Torras, M. and Roach, B., (2013). Macroeconomics in context, New York : ME Sharpe.
Mankiw, N. (2012). Macroeconomics, New York: Worth Publishers
McTaggart, D., Findlay, C., & Parkin, M. (2012). Macroeconomics, French Forest, N.S.W.: Pearson
Pigou, A. C. (2013). Theory of unemployment, New York: Routledge
Simpson, B. (2014). Money, Banking, and the Business Cycle, Basingstoke: Palgrave Macmillan.
Tan, K. P. (2015). Singapore in 2015. Asian Survey, 55(1), 157-164.
Trading Economics (2016), 300,000 Indicators from 196 countries, Retrieved 22 April 2017, from https://www.tradingeconomics.com/
Waring, P., & Lewer, J. (2013). The global financial crisis, employment relations and the labour market in Singapore and Australia, Asia Pacific Business Review, 19(2), 217-229.
Weale, M., Blake, A., & Christodoulakis, N. (2015). Macroeconomic Policy, Florence: Taylor and Francis.
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