Question:
Write an essay on “Economic Performance of Singapore”.
Singapore has been a trade oriented economy with the most business-friendly regulatory environment. It is a successful free market having a strict tolerance to corruption and ethical practices. Manufacturing and Service sector has been the two strong pillars of the economy. Maintaining and managing international competition has been priority for Singapore’s sustainable growth since it is dependent on the export and imports volume largely. To sustain the financial pressure on the economy, government intervene to manage human capital and inflow of foreign workers with its tight regulations. Singapore has witness major restructuring of policies and procedures for industrial growth, correcting labor market and developing the internal resources of the country.
The essay will highlight the economic trend indicating the GDP performance & productivity, focusing the monetary performance of the economy in a given period. It will discuss the issue relating to the mass momentum in the labor market, managing internal unemployment and opportunities created to provide longer job prospects to the citizens. Indicating the transition of Singapore government to transform its labor intensive industries to capital intensive, cutting down the dependency on foreign workers and upgrading the skills of its local workforce. The study will also analyze the inflation trend of the country, emphasizing the types of inflation prevalent in economies around the world. Underlining the initiatives taken by the Singapore government to address each challenge and reposition the country’s economic stance at a higher level. These prospects aspire to embark new growth level for the country in near future.
2.1 Real Gross Domestic Product
The Gross Domestic product is a term that measures national output and income of a focus country’s economy, adjusting inflation. It sums up all the expenditure of goods and services produced with in the country in a given period. The GDP of Singapore was US$ 307.86 billion in 2014 than US$ 302.25 in 2013. As per the Monetary Authority of Singapore, the credit for this growth goes to expansion of financial service industry with manufacturing sector contracting to 2.5%. The growth has been observed in construction sector for creating new infrastructure and service sector to a large extend. The Singapore’s GDP is 0.50 percent the world economy, the average GDP performance since 2009 to 2014 is US$ 67.77 billion (Industry., 2014).
Singapore strong economic growth picked up from 2010 onwards, nearly grew up to 15% after the global recession pertaining to foreign investment and development strategy. Service sector has been a major contributor with more than 75% of total GDP. Finance & insurance and business service sector experienced a growth of 7.7 % and 2.9 % respectively. The other sectors such as transportation, telecommunication and wholesale & retail trade has also expanded in 2014 (Industry., 2014).
Figure 1: Singapore GDP
2.2 Real Gross Annual Growth Rate
The real gross annual growth rate can be determined by the change in the value of goods and services over a period in a year. The country experienced a slower annual growth rate during the period of 2012 to 2014, the government initiative to reduce the cheap labor in the market has pushed up the cost. Singapore has been trying to cope up with the stiff competition from developing countries like India, Vietnam and China for its low cost manufacturing products since long.
Singapore aspires to utilize its internal human resources to reduce external dependency through intensive training & development programs especially for Singaporeans and strict immigrant policy. These initiatives implemented between 2011 to 2013 at a large level has resulted the annual growth rate to stabilize between 3 to 4 % during 2012 to 2014.
Figure 2: Singapore Gross Annual Growth Rate
2.3 Real GDP Per Capita Analysis
The gross domestic product per capita can be determined by measuring the average income of per individual in a country. The GDP per capital of Singapore was accounted at US$ 38087.89 in 2014. As a part of world’s average contribution, Singapore GDP per capita amounts to 302%. The GDP per capita of Singapore has been highest in 2014 pertaining to the resources and evolving service sector in the country. The lowest has been recorded in 2009 at US$ 30700.47 due to global recession (Siddiqui, 2010).
Figure 3: Singapore GDP Per capita
The income of the people in the country is increasing but the job opportunities have squeezed down due to lack of skill and expertise in the locals. This mis-match has reduced the number of people spending more money combined with the number of lay-off taking place in the country. The fall in the per capita income was largely effected during the period of 2010 to 2011, whereas it picked up most in the year 2013 to 2014 pertaining to new policy initiatives.
2.4 Production Output Performance – Government Measures
As an initiative to enhance the economic and financial performance of the country, Singapore government has implemented economic restructuring and growth policies. The government aspire to created value added and high capital intensive industries with in the country, creating lesser dependency on the foreign workers. These initiatives drive the economy to achieve higher per capita economic output with lesser number of foreign workers. It would also enable the country to improvise the overall productivity and competition in the market (Koh, 2006).
Singapore government plans to introduce new innovative approach for product manufacturing processes, supply chain management, R&D and new market entry strategies. These initiatives would lead the country to drive the industrial economic growth, bringing more opportunities as well as foreign investment. Through a comprehensive R&D ecosystem the government aspires to enhance the innovative capabilities of local enterprise (Abeysinghe & Choy, 2007).
Managing human capital has been the most important agenda of Singapore government. Human capital development policy has been implemented to upgrade the skill of the local workers adjusting to the evolving change of the industry. This initiative would enable the human resource to stay employable for a longer period (OECD, 2013).
3.1 Unemployment Trend in Singapore
Singapore unemployment status as shown in figure 4, has been lower in 2014 in comparison to 2012. The major unemployment hit was observed between 2009 to 2010 following the global economic recession. The fall in the unemployment rate is due to the high labor force participation for residents reaching to new heights, driven by the involvement of older residents and women. There have been more training programs for local residents on skill upgradation such as Workfare Training Support Scheme, Continuing Education and Training etc. Due to these initiatives the employment rate fell down drastically to 2.3% in 2011 to 2.1 – 2 % in 2012 (daohua, 2014).
Figure 4: Singapore Unemployment Rate
3.2 Types of Unemployment in Singapore
Unemployment is a situation where the deserving candidate is unable to find a job for himself. In Singapore there are three different kinds of unemployment such as frictional unemployment, Structural unemployment and Cyclical unemployment (Fiji., 2004).
Frictional unemployment is a transitional unemployment; it happens because potential candidate takes time to find an appropriate job suiting to his or her credentials. Pertaining to Singapore government’s initiative to motivate the citizen with better opportunity, replacing with the one held by immigrants, takes time. Also fresh graduates, looking for job takes their own course to find one. This type of unemployment is prevalent in every economy.
Structural Unemployment takes place as a result of restructuring in the economy. This takes place when a country faces mismatch of the skills with regards to the changing structure of the industry. Singapore has been driving efforts to reduce the labor dependency and create automation through capital intensive technology. Such change has caused unemployment from the low skill industry which needs to be trained and re-employed. The manufacturing industry in Singapore has seen a down shift due to the competition from low cost emerging economies, moving away the investment and trade opportunity.
Cyclical unemployment is a result of demand-deficiency in Singapore as the country is largely dependent on external demand for its economic growth. The shrinking manufacturing sector has made the Singapore IT products exports expensive for the rest of the world. The fall in international demand of the manufacturing product in the market has lower the demand for Singapore’s goods and services, further resulting to economic depression, workers lay-offs, plant shut-down etc.
3.3 Higher Employment – Government Measures
To address the issue of unemployment, Singapore government has initiated heavy investment on training and development programs for the resident workforce of the country, especially women and elderly people. To make the locals employable for a long time it has been identifying industries with longer sustainability and train them as per the skills required.
A key initiative has been implemented such as Worker Training Support Scheme in 2010 for the low wage workers to get enrolled. On the same hand employers are provided subsidies up to 95% on the course fees as well as absentee pay roll. Another scheme such as Continuing Education and Training in 2011 for professionals, executives, technicians, executives, etc comprising for more than 50% of the workforce in Singapore (OECD., 2012).
The government is also geared up by creating infrastructure for education and training in the form of building universities, focusing on innovation and entrepreneurship. Creating opportunities for aging generation and labor workforce through Tripartite Committee with following measures such as restructuring the wage structure, employment opportunities for older workers; enhance skills and productivity (Tat & Toh, 2014).
4.1 Inflation Trend in Singapore
The inflation has fell sharply to -1.5% in 2010 due to the global recession, as the market grew from 2011 onwards the inflation begins to rise. Reaching to a level of around 6% in 2012 it fell sharply again in 2014 and 2015. Inflation fell sharply by .2% year-on-year in Dec 2014 mainly due to the fall in transportation as well as housing costs (Dube, 2013). The moderation in the residential property price has been able to manage the inflation rate at a lower level. The real income growth picked up in 2013 due to high nominal income gains causing inflation to be eased. The real median income of the workers increased by 4% in 2013 causing to fall in inflation levels (IMF, 2013).
Figure 5: Singapore Inflation Rate
4.2 Causes of Inflation
Inflation is caused due to a persistent increase in general price level in the economy along with the fall in the consumption pattern and purchasing power of the consumer. There are two types of inflation in any economy such as:
Demand Pull – The demand pull inflation occurs when the aggregate demand of the goods and services produced in a country is more than the supply. This creates a situation where the excess from the supply needs to be diverted to fulfill the increase in demand. Demand pull inflation in a country curtails the exports diverting the goods to attain domestic market demand. This also reflects an economic inefficiency to produce required goods and services for domestic consumption (Ebiringa., Thaddeus, & Anyaogu, 2014).
Figure 6: Demand Pull Inflation
Cost Push – Cost push inflation takes place when the higher cost of production is passed on to the consumer by making things expensive and selling them at higher prices. Also a rapid increase in the wages or salaries as well as increase in the raw material price are the cause to cost push inflation (Ebiringa., Thaddeus, & Anyaogu, 2014).
Figure 7: Demand Pull Inflation
4.3 Stable Price – Government Measures
To stabilize the inflation fluctuation in the economy Singapore government has taken steps in the most affecting sectors such as Housing and Transport, Labor market and etc. Housing and transportation has accounted for more than two-third of the rise in the prices in 2012 and it is further account for more than half this year. To address the housing inflation, Singapore has introduced a new tool that would discourage and restrain the housing market. Implementing limitation on loan credit and increasing additional stamp duties would together make the housing market expensive, thereby increasing the value of the existing ones and rentals both (Chan, 2013).
To correct the transportation sector especially the car segment, the government is in the process of re-examining the system of classifying certificates of entitlement. This initiative would help in optimizing the allocation of COEs as well as tempering with the car prices. To control the labor market, tighter regulations on hiring foreign workers has been implemented to keep the labor market tight. Lower number of foreign workers would help companies having relief from foreign workers levies.
Few more fiscal measures have been designed to help businesses to cope-up with the increasing costs such as Wage Credit Scheme, increase wage of Singaporean employees; Productivity and innovation Credit, encourage businesses to make improvement in their productivity as well as conduct innovation; Gross Income Tax Rebate, providing 30% rebate on the business cost granted to companies for three years from 2013 to 2015 and Enhancement to the productivity and innovation credit scheme, help business invest money in innovation and enhance productivity at the same time.
5. Conclusion
To summarize, the Singapore economy is showing positive improvement in its overall structure to address the challenges of economic growth, unemployment and inflation. The country has altered with economic policies and procedures to correct the present situation of managing human capital, housing and transportation sector as well as unemployment rate in the country. Adequate measure with regards to each challenge has been put in place to ensure the stability in economic growth, increase in employment opportunities for women and older people and curb the fluctuating inflation levels. The overall growth of the economy has been turbulent since 2005 to 2014, having fluctuating performances as well as growth level. The continuous government innovative initiatives aspire to take the country way ahead of its competing nations.
Abeysinghe, T., & Choy, K. M. (2007). The Singapore Economy: An Econometric Perspective. London: Routledge.
Chan, F. (2013, Feb 14). Taming the inflation monster.
daohua, D. (2014). The Reasons Why the Singapore Economy Has Been Outperforming Hong Kong.
Dube, A. (2013). “Minimum Wages and Aggregate Job Growth: Causal Effect or Statistical Artifact?
Ebiringa., Thaddeus, O., & Anyaogu. (2014). Exchange Rate, Inflation and Interest Rates Relationships: AnAutoregressive Distributed Lag Analysis. Journal of Economics and Development Studies, 267-269.
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