Question:
Develop the Economic Performance of Singapore.
The research study has been aimed to develop the economic performance of Singapore. Currently, stronger than expected growth numbers in the economy of Singapore has boosted the outlook. As a result of the outcome, Singapore has become one of the top ten richest economies in the world having GDP worth US$ 269.97 billion in 2016 (Singstat.gov.sg, 2017). In the meanwhile, the economic expansion in Singapore has been primarily driven by increased global demand. Apparently, the GDP annual growth rate of 2.5 percent in 2016 has been a positive sign for economic performance of Singapore.
Invariably, the positive turnaround in the global economic outlook has boosted the exports of Singapore although trade policies of new US President and domestic restructuring policies in Singapore have created fresh challenges. Other than the GDP growth, the unemployment rate and inflation can be identified as the two major economic indicators for the economic outlook (Korres, 2007). Evidently, the Monetary Policy of the Monetary Authority of Singapore (MAS), the central bank of the country, has ensured low inflationary rate controlling the domestic rate of interest.
The economic performance is significantly outstanding for Singapore economy as the global demand has picked up exports of the nation. Since 2008 to 2014, the economy of Singapore has shown continuous upward growth trajectory. Due to global cues, in 2016 the Gross Domestic Product (GDP) of Singapore was dropped to US$ 269.97 billion in compared to US$ 308.14 billion in 2014 (Singstat.gov.sg, 2017). Notably, the GDP value of the economy has featured 0.48 percent of the entire global economy. In the underlying figure, a graphical chart has been given describing the GDP trend of Singapore economy over the past ten years.
Figure: Singapore Gross Domestic Product (in USD Billion)
Source: (Singstat.gov.sg, 2017)
In the meanwhile, the annual growth rate of Singapore GDP is hovering between 1 to 3 percent since 2014. According to the latest data released by Statistics Singapore, the Singapore economy has expanded 2.5 percent on annual basis in the June quarter of the current financial year. On a quarterly view, the economy has expanded at a rate of 0.4 percent which is less than the estimation of 1.1 percent (Singstat.gov.sg, 2017). Although the economic growth rate of Singapore has seemed to be static over the previous few years, in 2010 the growth rate of the economy reached to a all time high of 19 percent as depicted in the below figure.
Figure: Singapore GDP Annual Growth Rate
Source: (Singstat.gov.sg, 2017)
In terms of growth scenario, the economy has been positioned in a stabilised manner although the negative global cues can create major headwinds in the path of long-term growth. Driven by the global trade and demand opportunities, the Government of Singapore has officially forecasted economic growth at one to three percent in 2017 (Sgs.gov.sg, 2017). However, the GDP per capita in Singapore has shown sign of outstanding improvements as the data looks promising since 2009. Evidently, the economy has seen constant upward trend as far as GDP per capita is concerned. In 2016, the Gross Domestic Product per capital in the economy was recorded at US$ 52600.6 (Singstat.gov.sg, 2017). Precisely, such healthy GDP per capita has clearly indicated the healthy scenario of the economy.
Figure: Singapore GDP Per Capita (in USD)
Source: (Singstat.gov.sg, 2017)
Since independence, Singapore economy has come a long way forward registering rapid economic prosperity due to the outward-oriented growth strategy. Over the three decades or so, the export of Singapore has largely developed from labour-intensive to become high value-added items. Over the previous decade, the GDP of Singapore has surged from US$ 180 billion to US$ 297 billion. Meanwhile, the government policy of Singapore has massively contributed towards the growth of real GDP at a compounding rate of 12 percent per annum (Singstat.gov.sg, 2017). Effectively, the government of Singapore has put equal importance on the macroeconomic policies so that long-term investments are kept coming to form a favourable economic environment. In addition, the suitable fiscal policy has supported long-run economic growth rather than distributing income or cyclical alterations. Evidently, the target-oriented fiscal policy has positioned Singapore to possess health fiscal arrangement keeping a high rank of foreign reserves, budget surpluses, and impeccable credit rating (Sgs.gov.sg, 2017). Decisively, the long-term economic policies and strategic interventions have modified the fundamentals of Singapore economy over the time encouraging foreign participations.
In the Singapore economy, unemployment statistics have been closely monitored although by international standards the unemployment rate in the nation is significantly low. Prime Minister of Singapore, Lee Hsien Loong has cautioned that due to unreliable global cues and subsequent economic pressure from other developed economies, the unemployment rate in the country could increase. Evidently, Singapore has wrestled through technological changes, restructuring of domestic infrastructure, and ageing working population (Kit, 2017). Also, despite the higher economic growth rate, the unemployment rate has increased. The recent data of unemployment has shown that the seasonally adjusted jobless rate has unchanged at 2.2 percent in the June quarter.
Figure: Singapore Unemployment Rate
Source: (Stats.mom.gov.sg, 2017)
Although the rate of unemployment is significantly low in comparison with the other developed nations, the rate is considerably the highest since December 2016. The graphical representation has featured the jobless rate of the economy over the past decade (Lee, 2017). Clearly, since 2010, the rate of unemployment is hovering around the baseline of 2 percent. Since the global recession of 2008, the manufacturing, service, IT, and healthcare industry have produced the maximum number of jobs in Singapore. Recently, the change in US job policy has created substantial pressure on the labour market in Singapore as well (Choi, 2012). Due to the Global Economic Crisis, the unemployment rate in Singapore has reached as high as 3.3 percent. From thereon, effective government policies and industrial growth have contributed to stabilise the job market supporting the economic conditions.
By considering the last ten years unemployment statistics of Singapore, it can be clearly seen that three different types of unemployment can be evident in the economy. Firstly, the cyclical unemployment has negatively impacted the Singapore’s labour market during the Global Financial Crisis (Moffitt, 2014). Cyclical unemployment occurs due to the fall in the demand for workers in the labour market. A rise in the unemployment rate can be evident in Singapore during the GFC in 2008-2009 that resulted from cyclical unemployment (Goerke & Madsen, 2013). Additionally, a small proportion of structural unemployment can also be noticed in the Singapore economy due to the skills gap among the younger generation people. After the Global Financial Crisis, the Government of Singapore has undertaken different economic reforms in order to stabilise the labour market of the nation (Moffitt, 2014). For instance, the well planned economic reforms in the form of changes in the fiscal and monetary policies have promoted business in the country to meet the growing needs of the population.
However, a minimum level of unemployment has always remained in the economy due to frictional unemployment. This type of unemployment occurs in the labour market due to the voluntary retirement of the workers in search of a new job (Karras, 2016). The time gap required to get employed in the new job leads to frictional unemployment. In a nation like Singapore that has a small and well educated workforce, people leave their job in search of a better and highly paid jobs. Hence, irrespective of the well planned economic strategies of the Singapore Government, a minimum level of unemployment cannot be avoided in the economy.
In the recent years, the Government of Singapore has taken the initiative to promote foreign investment in the nation that provides employment to the local people. On the other hand, the Government cancels the Visa of the expats who lose their jobs in Singapore. Hence, these economic policies have helped the Singaporean Government to keep the labour market under control (Goerke & Madsen, 2013). Furthermore, the Government of Singapore has taken the initiatives to provide professional and skills development trainings to the younger generation people in order to deal with the structural unemployment in the country (Karras, 2016).
Inflation is an economic indicator that presents the rise of aggregate price level for a particular period. According to the statistical figures of Singapore, the Singaporean Government has been quite effective in controlling the aggregate price level during 2013 to 2015 in the country. During the GFC, the supply of money reduced in the Singapore market leading to rise in the value of products and services that resulted in a high level of inflation rate of around 7.6 percent in the year 20008-09 (Bauducco & Caputo, 2010). Later on, a deflation can be evident after the end of the Global Financial Crisis in the year 2009 that ended up with a high inflation rate during 2012 that reached up to around 6 percent. But, the government effectively controlled the price level and again the economy faced a deflation from the second quarter of 2015 that extended until the beginning of 2017. Currently, the Singaporean economy seems to have a stable inflation rate of around 0.5 percent, which is good for the nation (Stats.mom.gov.sg, 2017). The last ten years aggregate rise and fall in the price level of Singapore has been presented in the figure given herein below:
Figure: Inflation Rate (Singapore)
Source: (Stats.mom.gov.sg, 2017)
Inflation occurs in an economy due to two different reasons that are known as Demand Pull Inflation and Cost Push Inflation. The demand pull inflation has occurred in Singapore market before and after the GFC due to the availability of high amount of liquid cash among the people (Covas & Zhang, 2010). The availability of money has increased the buying power of the consumers leading to increase in the aggregate demand in the market. A figure has been presented herein below for further consideration:
Figure: Inflation (Demand Pull)
Source: (Berlatsky, 2013)
It can be seen from the above figure that rise in the availability of money has increased aggregate demand leading a shift in the demand curve from AD1 to AD2. Hence, the aggregate price level of the products and services had increased from P1 to P2 (Dehejia & Rowe, 2010). Later on, during the end of the GFC, the availability of money reduced in the market resulting in fall in the demand as well as fall in the aggregate price level in the country.
Alternatively, the fall in the supply of products and services after the GFC has resulted in cost push inflation in the nation during 2010 to 2012. Later on, a high level of aggregate supply in the market has resulted in the fall in the aggregate price level during 2015 to 2016 resulting in a deflation (Stats.mom.gov.sg, 2017). A diagram has been presented herein below to explain the concept of cost push inflation.
Figure: Inflation (Cost Push)
Source: (Berlatsky, 2013)
It can be seen through the above diagram that the supply in the market falls resulting in a shift in the short run aggregate supply curve from SRAS 1 to SRAS 2 (Gerberding, Gerke & Hammermann, 2010). On the other hand, the aggregate demand remains constant at AD1 resulting in a rise in the average price level. In the same manner, if the supply increases after a particular level, a deflation can be seen in the economy.
Irrespective of the rise and fall in the inflation level in Singapore, the government has effectively controlled the price level in the recent year. Currently, the inflation rate of Singapore is around 0.5 percent. The Government of Singapore has effectively used its economic policy reforms such as fiscal policies, low credit rate and price flooring strategy to control the price level in the market (Berlatsky, 2013). Furthermore, the government is using low credit rate to attract foreign investments and promote business in the nation. Hence, it can be seen through the above analysis that the Singaporean Government has effectively used its economic policies in order to maintain stability in the aggregate price level of the nation.
Conclusion
By considering the economic indicators of Singapore, it can be seen that the economy is one of the leading and fastest growing developing nations of the world. The overall annual GDP growth rate of 2.5 percent points out towards continuous progress in the Singapore economy. Additionally, the unemployment level has been effectively controlled by the Government of Singapore using different economic policy reforms. However, it is not possible to avoid a minimum level of unemployment due to the occurrence of frictional unemployment. Finally, by looking into the price level analysis, it can be seen that aggregate price level in the country has fluctuated between 8 percent to -1.5 percent in the last ten years. But, the Government of Singapore has been able to maintain a balanced inflation rate in the recent year.
References
Bauducco, S., & Caputo, R. (2010). Price level targeting and inflation targeting (3rd ed.). [Santiago]: Banco Central de Chile.
Berlatsky, N. (2013). Inflation (3rd ed.). Detroit, MI: Greenhaven Press.
Choi, C. (2012). Measuring Unemployment Durations of Different Types of Workers. Journal Of The Korea Academia-Industrial Cooperation Society, 13(4), 1603-1608.
Covas, F., & Zhang, Y. (2010). Price-level versus inflation targeting with financial market imperfections. Canadian Journal Of Economics/Revue Canadienne D’économique, 43(4), 1302-1332.
Dehejia, V., & Rowe, N. (2010). Macroeconomic stabilization: fixed exchange rates vs inflation targeting vs price level targeting (4th ed.). London: Centre for Economic Policy Research.
Fiscal Policy. (2017). Sgs.gov.sg. Retrieved August 2017, from https://www.sgs.gov.sg/The-SGS-Market/Fiscal-Policy.aspx
Gerberding, C., Gerke, R., & Hammermann, F. (2010). Price-level targeting when there is price-level drift. Frankfurt am Main: Dt. Bundesbank.
Goerke, L., & Madsen, J. (2013). Earnings-related unemployment benefits and unemployment. Economic Systems, 27(1), 41-62.
Karras, G. (2016). Can a Higher Inflation Target Reduce Inflation Volatility?. Metroeconomica.
Kit, T. (2017). Singapore’s unemployment rate: How much higher could it rise?. Channel NewsAsia. Retrieved August 2017, from https://www.channelnewsasia.com/news/business/singapore-s-unemployment-rate-how-much-higher-could-it-rise-8818602
Korres, G. (2007). Regionalisation, Growth, and Economic Integration (1st ed.). Heidelberg: Physica-Verlag Heidelberg.
Lee, Y. (2017). Economists upgrade Singapore’s 2017 growth forecast. CNBC. Retrieved August 2017, from https://www.cnbc.com/2017/03/15/economists-upgrade-singapores-2017-growth-forecast.html
Moffitt, R. (2014). Unemployment benefits and unemployment. IZA World Of Labor.
Statistics Singapore – Statistics. (2017). Singstat.gov.sg. Retrieved August 2017, from https://www.singstat.gov.sg/statistics
The Singapore Economy. (2017). Sgs.gov.sg. Retrieved August 2017, from https://www.sgs.gov.sg/The-SGS-Market/The-Singapore-Economy.aspx
Unemployment Rate. (2017). Stats.mom.gov.sg. Retrieved August 2017, from https://stats.mom.gov.sg/Pages/Unemployment-Summary-Table.aspx
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