Singapore is an open free market economy bounded by its geographic size. Small size or limited resources however cannot restrict economic prosperity of Singapore. This is one of the fastest growing Asian economies across the globe. Economic resilience and strength of the economy has been reflected from a quick economic recovery after crisis hit in 2008 (worldbank.org, 2018). Access to limited resources makes the economy extremely dependent on its external sector. One key source of economic revenue is earnings from export. The economic openness helps foreign investors to invest in the nation. Favorable structure of tax helps further attracts business investment. The economy involves in value added activities in the industrial and service sector (Benigno, Converse & Fornaro, 2015). Banking, energy, real estate, infrastructure and biotechnology are some of the major economic sectors.
The key drivers of economic growth are engineering and electronics. In the service industry, the fastest growing subsectors include finance, insurance, transport and storage. Tea per presents a brief summary of economic performance of Singapore for the period extending from 2008 to 2017. Economic performances are measured in three major aspects of output, labor market and price level trend.
Gross Domestic Product is primary indicator used to gauge performance of an economy in terms of aggregate output. It presents total monetary values of all goods and services that a nation produces in a given period of time. GDP is represented either in current year market price or constant year price. The former is termed as nominal GDP while the other is termed real GDP (Goodwin et al., 2015).
GDP of Singapore in the last ten year changes in an increasing manner. GDP was at a significantly lower level during 2008. This is because of recessionary shock that arose due to outbreak of global financial crisis. However, because of internal economic resilience and support received from the government, the economy recovered as reflected from the continuously increasing GDP (Chang, 2016). Significant expansion of manufacturing sector led to an overall expansion of the economy.
GDP growth rate is a representative measure of economic growth. It capture change in GDP in one year relative to the previous year and computed as a percentage change of GDP.
The economic growth trend showed an exceptionally high growth rate in 2010. This marked a significant recovery in economic growth after a negative growth rate in 2009 because of global recession. After that, economic growth declined and continue to remain at a stable state. Economic growth remained close to 5 percent in the last few years.
GDP per capita measures average income and is computed by the ratio of GDP to total population (Uribe & Schmitt-Grohé, 2017).
Per capita GDP in Singapore in 2017 has been accounted as 55235.51 USD. Since 2010, per capita GDP continued to increase because of a stable growth in GDP (Barkat et al., 2016).
Macroeconomic policies that supportive to economic growth has played an important role in economic prosperity of Singapore. Two key policies designed by government to ensure stable growth path are fiscal and monetary policy. Expansionary fiscal policy is taken when the economy experiences recession (Zhang, 2018). Singapore however differs from other nation in the design of fiscal policy. Followed by a lower government expenditure as compared to export, to expand aggregate demand government increases transfer payments. Singapore aims to achieve a productivity driven growth. For this, measures are taken to promote technological innovation. The government of Singapore has recently announced a Productivity Solution Grant (PSG) which aim to fund up to 70 percent of the cost for Small and Medium sized enterprise seeking to develop their own technological skill (Williams, 2018). The Economic Strategy Committee (ESC) of Singapore aims designs strategy of economic growth to achieve a set of targets related to growth and development of Singapore.
Structural unemployment
Structural change in an economy affects the labor market in terms of creating structural unemployment. The change in industrial structure causes a discrepancy between skill and jobs (Goodwin et al., 2015). Shift from capital intensive to labor intensive technology causes structural unemployment in Singapore.
Frictional unemployment
Young Singaporeans entering the labor after completing education and people who quit their jobs but yet not found a new one add to the problem of frictional unemployment.
Cyclical unemployment
Unemployment during business cycle recession is called cyclical unemployment. An example of cyclical unemployment is unemployment caused during global financial crisis (Chang, 2016).
In terms of unemployment, performance of Singapore is a satisfactory as the economy successfully maintained a low unemployment rate with rate of unemployment remaining between 2 to2.5 percent. Unemployment was at a considerably higher level during 2009. Unemployment rate during this time was as high as 3.3 percent. Total employment in Singapore has risen by 7100 in 2017 after some contraction in the previous period. Continuous addition of jobs in the service sector helps to reduce unemployment rate in Singapore. Services that record rapid employment growth include transportation and storage, communication and information, social, personal and community services, finance, insurance and professional services (Gozgor, Chang & Bilgin, 2017). Contraction sector on the other hand recorded a significant decline.
Singapore government designs effective policies to address the existing structural and frictional unemployment in the economy. Community Development Council in Singapore organizes program to match jobs with available workers. Another policy towards achieving a full employment is Career Support Program. The program aims to assist Singapore Citizens to find jobs as Professional, Managers, Executive and Technicians. Targeted group for this program is those stayed redundant in the labor force or searching for jobs for a pro-longed period. The program ensures a minimum gross monthly salary of $4000 (wsg.gov.sg, 2018). The four key strategies that Singapore currently relying for job creation are maintaining a steady flow of job creation, raising flexibility an adaptability of available workers, promoting inclusiveness and improvement of workplace environment. P-Max program, Lean Enterprise Development Scheme and employer’s subsidy are other policies to keep unemployment at a low level.
Inflation rate in Singapore has declined overtime representing a stability in average price level. In 2009, inflation rate fell drastically and the economy was experiencing a deflationary pressure due to global economic shocks in 2008. With recovery in economic activity, aggregate demand increased leading to an increase in price level. After this, price level remained at a more or less stable state. Consumer prices however rose slightly by 0.2 percent in the last quarter. In the CPI basket, inflation increased for food. Cos of food went up mainly due to an increase in prices of cereals, bread, meat, fish, seafood, eggs and milk. Vegetable prices by contrast recorded a drop in prices. Price for food services such as cost in food courts, fast food, catered food and restaurant remain unchanged. In the service industry cost increased for services like transport, recreation and culture, entertainment and healthcare.
An upward pressure on the price level is derived either from demand side or from supply side. Demand sided inflation is called demand-pull inflation. For this type of inflation, an increase in aggregate demand pushes the price level up. The supply side shortage in the economy caused by an increase in production cost can also create an inflationary pressure in the economy. This is termed as cost-push inflation (Goodwin et al., 2015).
The likely cause of inflation in Singapore are as follows
Demand pull inflation
Aggregate demand can be increase due to a favorable change in any one of its component. In Singapore, the components of aggregate demand responsible for demand-pull inflation are spending incurred by the government and net export. Spending most made in armed force or police force. Net export on the other hand increases due to increase in demand for foreign buyers.
Cost-push inflation
Labor is the main input in most industries of Singapore. A significant increase in wage increases production cost in major industries and causes cost-push inflation.
Imported inflation
Cost-push inflation in Singapore is often resulted from an increase in price of import. The limited natural resources make the nation highly dependent on resource rich nation (Gozgor, Chang & Bilgin 2017). Following heavy reliance on external sector, an increase in imported price due to appreciation of currency results in imported inflation in Singapore.
Maintenance of price stability is one primary goal of monetary policy. Singapore Monetary Authority is the governing body for monetary policy. The main cause of inflation in Singapore is the upward pressure on imported goods. Controlling import price is therefore the key to achieve price stability in Singapore. The monetary authority uses nominal exchange rate policy to reduce price of goods imported from other nation. Government on an average revaluates currency at a rate of 3% per year since 2010. The tight monetary policy is used to reduce excessive inflationary pressure in the economy (Gagnon, 2014). The policy of exchange rate controls inflation in the economy by reducing pressure from external sector. The exchange rate policy also helps to reduce pressure on domestic price by reducing demand for resources derived from lower export demand.
5.0 Conclusion:
Based on the analysis so far made, Singapore can be identified as an economically string nation. Despite challenging circumstance, the economy manages to constitute a steady performance. In order to evaluate output performance, trend in GDP, growth rate of GDP and per capita GDP are analyzed. Except in 2008, there is an upward trend in all the three indicator. The outstanding output performance has mainly contributed from expansion in manufacturing and service sector. Government provides considerable support to the economy. Policies are designed to encourage innovation in order to enhance productivity. The main types of unemployment found to exist in Singapore are structural, frictional and cyclical unemployment. Trend unemployment in Singapore has declined overtime. Increasing job openings in different services and government employment promotion measures help the economy to keep unemployment at a lower level. Different employment generation program launched by the government include P-max program, Career Support Program, employer subsidy and other employment generation program. So far as inflation is concerned, import price inflation has become one of compelling factor. Exchange rate is the key policy instrument of Singapore’s monetary policy. Successful implementation of monetary policy results in stable trend in price level.
References:
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