Question:
Discuss about the Rising Inflation in Property Market.
Singapore comes under the most prosperous nations of the world. In 2014, it was ranked as top third country as per GDP (PPP) per capita ranking (Statistics Times, 2015). It is a democratic country, but since independence it has been ruled by only the People’s Action Party (PAP). The strong and energetic economy of Singapore is backed by stable political and legal environment and prudent macroeconomic policies. It has a very strong and effective judicial system resulting in least corruption. Service and manufacturing sectors are the two pillars contributing to the growth of economy in this country. Singapore is an open economy in terms of trade and investment. Its highly efficient and transparent regulatory structure promotes healthy commercial practices and competitive environment (The Heritage Foundation, 2017). In 2011 it was ranked as finest country to conduct business in world according to World Bank Ease of Doing Business Index. Since 1960, fast industrialisation took place in the country because of attraction of Foreign Direct Investment (FDI) and Multinational Companies into the country which resulted in rapid economic growth (Economic Watch, 2010). The per capita GDP in terms of current dollars of country grew rapidly since independence, as recorded US$ 516.3 in 1965 rose to US$ 29869.85 in 2005 and became US$ 56336.07 in 2014 (World Bank, 2017). The problem of lack of natural resources does not come in between the growth of this country as the strength and competitiveness of economy lies in the efficient management of human capital. The tourism industry of this country is also flourishing which attracts around 10 million tourists each year (Zhou, 2017).
Gross Domestic Product is the key measure to evaluate the economic performance of a country. It is an aggregate worth of final goods and services produced in a country over a given period of time. To facilitate comparison of counties output on a year to year basis it is important to adjust the effect of price level changes in GDP, as a result Real GDP is calculated. The per capita Real GDP is calculated by dividing total population of country from its total Real GDP, it shows average output contributed by each individual within a country (Amadeo 2017).
|
Year |
Real GDP (Constant 2010 US$) (Amount in Billions) |
Real GDP Growth Rate (in percentage) |
Per Capita Real GDP (Constant 2010 US$) (Amount in Billions) |
|
2005 |
170.72 |
7.489 |
40020.26 |
|
2006 |
185.84 |
8.86 |
42223.89 |
|
2007 |
202.78 |
9.112 |
44191.24 |
|
2008 |
206.40 |
1.788 |
42650.1 |
|
2009 |
205.16 |
-0.603 |
41133.3 |
|
2010 |
236.42 |
15.24 |
46,569.68 |
|
2011 |
251.14 |
6.224 |
48439.94 |
|
2012 |
260.86 |
3.871 |
49000.71 |
|
2013 |
273.91 |
5.001 |
50467.84 |
|
2014 |
283.69 |
3.572 |
51440.82 |
(Source: The World Bank, 2017)
Singapore has experienced gradual growth during the period 2005- 2014 with average growth rate of around 6.06% in GDP over these years. Since Singapore was amongst the robust economies of Asian region it witnessed tremendous growth rates in between 2004-2007. But being an open economy and profoundly linked to the world economy and higher dependence on exports to countries like US, Japan and Europe, its growth rate was severely affected by economic crisis of 2008-09. Besides hurting the export business, the global economic downturn also depressed the financial sector of Singapore. This ultimately affected the manufacturing, construction and other sectors (Jordan, 2009). As can be seen from table 1, the GDP growth rate was 9.11% in 2007 slipped to 1.79% in 2008 and even became negative in 2009. This decline was followed by exceptionally high growth in GDP recording 15.24% in 2010 because of impressive growth in manufacturing sector (BBC, 2011). In 2011 and 2012, the growth rate in GDP showed a declining trend of 6.22% and 3.87% respectively because of contracted growth in manufacturing sector and whole sale and retail trade sector (MTI, 2012; MTI, 2013). It again picked up the growth rate in 2013 to 5% because of remarkable growth in services providing industries, specially finance and insurance along with wholesale and retail trade sector (MTI, 2014).
Overall the Singapore is performing quite well in terms of production and output growth. The reason behind outperformance of Singaporean economy than several other developed countries is its economic and market structure, exchange rate mechanism and its policies related to foreign workers. The manufacturing, construction and utilities industries contributed to 23.1% in GDP of 2013. Service sector being the backbone of economic growth contributed 66.3% in GDP. The balance industrial structure of Singapore helped in sustained and fast growth in economy (HKTDC Research, 2014).
Government of Singapore has a strong support towards development of small and medium- sized enterprises as 70% of total workforce are employed in these enterprise and they cover half of total enterprise value. Singapore has always kept its high focus on importance of research and development and provided various cash incentives to SMEs to encourage innovation. Because of scarcity in natural resources and high dependence on human capital, government planned its budget by keeping sufficient margin to expand in education for efficient development in human capital (OECD, 2013).
Unemployment is situation where a person willing and able to work is not able to find job. Unemployment generally categorised as Cyclical, Frictional and Structural. Cyclical unemployment occurs because of cyclical ups and downs in economy. The loss of jobs by many individuals during recession period is cyclical unemployment. Frictional unemployment occurs because of time taken in matching the potential factors between employer and employee like salary, required skills, training, etc. Structural unemployment is closely resembled to Frictional one; it occurs because of lack of high skilled labours as required because of technological advancement. It happens because of structural change in an economy (Baumol and Blinder, 2008).
|
Year |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
|
Unemployment Rate(in percentage) |
5.59 |
4.48 |
3.9 |
3.96 |
4.3 |
3.1 |
2.9 |
2.8 |
2.8 |
2.8 |
Source: The World Bank, 2017
Unemployment rate is derived as percentage of unemployed people over total labour force of a country. The rate of unemployment in Singapore is quite low and has been on declining trend from 5.59% in 2005 to 2.8% in 2014 except in year 2008 and 2009 which showed little rising trend from 3.9 % in 2008 to 3.96% in 2008 and 4.3% in 2009, due to effect of global economic downturn. As Singapore is open economy closely linked to outer world the global recession hit the employment rate also and resulted in cyclical unemployment (MTI, 2009). Structural unemployment can also be seen in Singapore because structural change in economy due to adoption of technology, fast growth in innovation for higher productivity which many workers unable to adopt according to their skills (Tan, 2017).
Singapore has a population of around 5.5 million in 2014. Of total population 3.1 million were part of the labour force. The unemployment rate in country was only 2.8% this year being lowest in the world. There is a policy of mandatory primary education for all inhabitants and bulk of work force is found well educated and highly skilled. In early 1990s, the government predicted the possible problem of labour shortage in near future as it had lowest population growth rate. As a result it introduced various policies to welcome foreign immigrants and job seekers to stay and work in Singapore (Economic Watch, 2010). The government has given strong emphasis on education for development of human capital. The liberal policies for entrants of foreign workers has not only increased the high- skilled and high-waged workers but also low skilled and low- waged workers which who were not much helpful in era of technological advancement. At the same time in order to assists local workers to cope with changing environment for sustainable employment government launched various schemes for training and development programmes like Workfare Training Support Scheme (WTS), Continuing Education and Training (CET) scheme; providing subsidies to students for higher education, setting up of various universities focusing on technology, innovation and entrepreneurship (OECD, 2013). Ministry of Manpower (MOM) closely monitors the labour market condition of country and announces various measures time to time in order to achieve full employment.
Inflation refers to continuous rise in the overall price structure of goods and services in an economy resulting in decline in purchasing power of individual against money. Inflation can occur because of many internal and external factors. One of the main causes of inflation is that the rising demand of consumers cannot be fulfilled by scare resources resulting in price rise, explained by demand- pull effect. Another one is cost pull effect, which is increase in prices of products by firms as a result of their rising input costs (Marthinsen, 2014).
|
Year |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
|
Inflation Rate (In Percentage) |
0.425 |
1.021 |
2.095 |
6.519 |
0.604 |
2.8 |
5.253 |
4.529 |
2.378 |
1.01 |
Source: The World Bank, 2017
The average inflation rate of Singapore of past ten years since 2005 has been around 2.7 per cent as measured by consumer price index. The inflation rate was rising at a slow pace from 0.425% in 2005 to 1.021% in 2006 and 2.095% in 2007. CPI inflation was contributed by both domestic and external factors in these years. The producer prices and import and export prices increased in these years because of high oil and petrol prices. Such rise in prices ultimately reflated in prices of consumer’s goods and services (MTI, 2007; MTI, 2008).
Year 2008 showed a sharp increase in inflation rate (6.52 per cent) due to hike in Goods and Service tax imposed by government of Singapore. The housing costs and food prices were quite high in this year. Against this extreme rise in inflation government provided most of the citizen with significant offsets to mitigate the effect of GST (Asiaone, 2008). GST was only the one-time effect for increase in prices not the continuous one. As a result the global downturn because of collapse in global oil prices leaded to severe fall in inflation in 2009 with CPI 0.6 per cent only. Producer, import and export prices decreased in these years because of decline in commodity and fuel prices (MTI, 2010). The economic downturn in 2009 was followed by strong recovery in 2010 with 2.8 per cent growth in CPI. The inflation in 2010 was contributed by rice in car prices, oil prices, food prices, education fees and holiday travel (MTI, 2011).
The increase in accommodation costs and electricity charges and rise in car and petrol prices caused another significant growth in CPI by 5.25 per cent in 2011 (MTI, 2012). Since then there has been decreasing trend in growth rate of CPI, as it was recorded 4.53 in 2012, 2.38 in 2013 and 1.01 in 2014. The import- export prices and producer prices has been declining in these years because of lower mineral fuel prices. After property- cooling measures there has been decline in rentals and accommodation costs at the same time transportation costs also declined because of lower car prices in 2014. 40 per cent decline in crude oil prices was essential factor for downward pressure (The Straits Times, 2014).
Trade within the country is quite important for Singapore which is the reason the main policy tool for controlling inflation by MAS is exchange rate rather than interest rates (The Straits Times, 2014). To compensate high food and oil prices in imports it allows appreciation in Singapore dollar. National Environment Agency is adopting various management models to keep affordable cost of prepared food. The Retail Price Watch Group is also keeping close watch in unreasonable increase in prices of food and daily necessities. Government has also taken various efficient measures to mitigate cost pressure at domestic level (Singapore Government, 2012).
Conclusion:
In conclusion it can be said that Singapore is performing commendably well and credit goes to the Prime Minister Lee Hsien Loong and is effective administration who has been leading the government since 2004. The stable political and peaceful social environment is of great help in accelerating the growth of economy. It has Real Gross Domestic Product of 283.69 billion in 2014. Considering the challenges faced by country like lack of natural resources and low population growth which contribute as human capital, the country’s regulatory and administrative policies systematically managed the human capital as a result it has lowest unemployment rate in the globe. It is an open economy for which trade and commerce is of great importance. It also welcomed foreign labour force to work in country. Its openness although affected it during global economic crisis, but it recovered exceptionally well because of systematically structured policies.
A transparent and efficient entrepreneurial environment and high focus of research and development projects supports the innovation and development. Recent structural change in economy due to shifting from labour intensive to capital intensive economy may leads to skill mismatch between labour forces and industry requirement but the government is trying its best to enhance the ability and skills of its workers. Government generously provide funding and subsidies assistance to housing, health care and transportation sector and education. Continuous measures are also taken to curb the rising inflation in property market, food prices, transportation sector and increasing productivity.
References:
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