Singapore is one of the most developed nations is Asia. Explain.
Singapore is one of the most developed nations is Asia. It has an open economy which stands seventh in degree of openness and additionally lures investors though the favorable tax regime. The per-capital GDP in 2015 stands at $85,127 (considering PPP) and hence is the third highest globally. The total GDP in real terms in 2015 stood at $ 470.55 billion. The estimated labour force as on 30 June 2015 stood at 3.63 million. The services sector contributed nearly 75% to the GDP while the remaining 25% being derived from the industry sector. The inflation in 2015 stood at the low level of 0.04% while the corresponding unemployment stood at 2%, The balance of payments for the country is also positive which implies that the exports surpass the imports. The inward FDI into Singapore in 2015 stood at USD 900 billion while during the corresponding period the outward FDI was $ 518 billion (Tan, 2015). In this overview of Singapore, the main aim of the given report is to conduct a review of the production output along with the labour market and the variation of price during the last ten years i.e. from 2005 onwards till 2015. Various relevant statistics during the period would be obtained for the period and a brief explanation for the same would be offered.
The trend of real GDP of Singapore during the period 2005-2015 is summarized in the graph below (TradingEconomics, 2016).
It is evident from the above figure that the highest GDP level of USD 306.34 billion is observed in the year 2014 while the lowest value of USD 0.50 billion is observed in the year 2005. It is also apparent that there is a general upward trend which is halted in 2009 by the global recession and also recently in 2015 due to slowdown in exports. In the past, the economy showed resilience and posted stellar growth during 2010-2011.
The graph indicating the growth rate of real GDP during 2005-2015 is indicated below (TradingEconomics, 2016).
It is apparent from the above graph that the highest growth rate of 37.2% per quarter was witnessed in 2010 when the economy started recovering from the shock of the global financial crisis. However, the lowest quarterly growth of -13.5% per quarter was observed in 2009 when the financial crisis was at its peak. This decline is but expected especially for an export driven economy such as Singapore. However, the quick recovery in the aftermath i.e. 2010 is a testimony to the resilience of the economy and government’s prompt decision making.
The graph indicating the per capita GDP during 2005-2015 is indicated below (TradingEconomics, 2016).
The per capita GDP has continued to grow on a y-o-y basis except during 2008 and 2009. This drop was attributed to decrease in GDP caused by the global financial crisis. The highest per capita GDP level has been reached in 2015 only with a value of USD 51,855.08. Further, the lowest value of the per capita GDP was observed in 2005 when it stood at USD 40,020.26. This rise in per capital GDP on a steady basis specially in the last five years is indicative of the improving standards of living for the Singaporean people which in turn transforms into better human development indicators leading to higher GDP growth.
The GDP may be defines as the sum total of goods and services product inside the country during a particular timeframe. Rea GDP tends to measure the GDP not at the market price but at the price of the goods and services in the base year of the index. This results in presenting an accurate picture of the economic growth which is not distorted by the inflation. The growth rate in real GDP may be defined as the change in percentage in the real GDP calculated on an annual basis. It is helpful in deciphering the trend of economic growth and is also useful for future forecasting. The per capita GDP is computed by dividing the GSP by the national population an tends to act as an indicator of the trend in living standards of individuals (Mankiw, 2012).
It is apparent that the real GDP for the country is quite stable though it is vulnerable to external shock as exhibited in 2009. The steady rise in real GDP is indicative to the output increase in real terms without considering any impact of price change. The growth rate curve with regards to GDP has witnessed various shocks prior to 2011 due to turbulent external environment but growth rate has become range bound in the last four years which provides stability to the economy. The per capita GDP is indicating a steady rise over the given period especially since 2010 which augers well for the enhancing living standards of the people. Further the rising income is also responsible for the rank improvement that Singapore has witnessed with regards to human development index (Mankiw, 2012).
A key role in the above economic performance of Singapore is attributed to the proactive measures taken by the government. These typically include providing a conducive environment to foster FDI and providing ease of doing business to investors. Further, through budgetary allocations, the government tends to focus on advanced technology and provides incentives to encourage the same. Additionally, the rise in GDP per capita is reflective of the success that the government has achieved in enhancing the productivity levels of people through implementation of skill development programs along with providing quality education and health services. Despite the low amount of land area available, through proactive planning by the government coupled with corruption free and transparent business environment, Singapore has emerged as the financial hub of Asia and is making rapid strides fuelled by a skilled manpower (Waring & Lewer, 2013).
The relevant trend for the unemployment rate in Singapore during 2005-2015 is captured in the graph below (TradingEconomics, 2016).
It is apparent from the above graph that the unemployment rate is highest for Q2 and Q3 2005 along with Q3 2009.and is pegged at 3.4%. Further, the lowest unemployment levels are pegged at 1.7% in Q3 and Q4 2007. However, since 2010, the unemployment levels have stayed consistently below 2.5%. Further, since 2012, the unemployment has not crossed 2% which would be considered as exceptional.
Unemployment may be defined as a situation when a particular individual wants to work but is not able to get any work. There are three main types of unemployment namely cyclical, frictional and structural.
Cyclical unemployment is defined as the unemployment caused due to lack of demand i.e. due to cyclical fluctuations in the business cycle (Weale & Christodoulakis, 2015). Structural unemployment typically results from changes in the industry structure especially technology and occurs when demand exists but the existing labour force do not have the requisite skills (Goodwin et al., 2013). Frictional unemployment results from the time lag between quitting a particular job and getting a suitable job. (Mankiw, 2012).
The different unemployment types that are existing in Singapore are discussed below.
Cyclical unemployment is prevalent in Singapore as it relies heavily on external labour from all round the globe particularly Asian countries such as India, China. In the event, that the aggregate demand reduces then there is a reduction in the demand of the labour and hence unemployed increases. On the other hand, better economic growth leads to higher employment (Tan, 2015).
Structural unemployment is prevalent in Singapore as greater emphasis is placed on promotion of capital intensive technology as a result of which the skill sets required are dynamic. Due to shift from labour oriented practices to technology driven, the skills of certain employees become redundant and they remain unemployment till suitable up-gradation in skills does not take place (McTaggart, 2012).
Frictional unemployment is prevalent in Singapore as individuals tend to shift to look for better jobs and inevitably there is a time delay in this process which gives rise to this temporary unemployment (Pigou, 2013).
The government has taken a host of measures to ensure that unemployment remains under check. One of the significant ones in this regard is the use of fiscal policy which tends to encourage innovation and productivity enhancing measures which in turn enhances the cost competitiveness of businesses based in Singapore (Borio, 2014). Additionally, active support is provided to the unemployed through programs such as Workfare Income Supplement (WIS) and also ensures that they have enough disposable income to invest in enhancement of skills (Wagner, 2014). In order to deal with structural unemployment in a vibrant economy, the government has initiated a Skill Programme for Upgrading and Resilience (SPUR) whereby trainees are imparted skills as well as paid. This goes a long way in resolving the issue of structural unemployment (Cho & Newhouse, 2013).
The inflation trend for 2005-2015 is captured in the graph shown below (TradingEconomics, 2016).
It is apparent from the above that highest inflation level that has been witnessed is 7% in the year 2008. Further, the lowest inflation level during the given period was seen in 2010 when the inflation was -1%. There are trends of inflation as it tends to increase and then decreases. The inflation peaked just before the global recession and then decreased to reach negative terrain during the recession, It further increased to peak in 2012 after which the inflation decreased to enter negative terrain in 2015.
Inflation may be defined as the general rise in price levels which tends to erode the purchasing power of money (Simpson, 2014).
There are two primary causes of inflation namely the rise in cost of underlying products or services and the increase in demand of goods. The former phenomenon is referred to as cost inflation and implies that the rise in product price is caused due to an increase in the production cost. Thus, at a particular price, the supply would drop and hence lead to increase in price due to shortage in supply (Ghosh, 2013). The latter phenomenon is referred to as demand pull inflation and causes a rightward shift in the demand curve due to higher demand which leads to an increase in the equilibrium price resulting in inflation (Gandolfo, 2013).
Singapore witnesses’ inflation of both the kinds mentioned above.
The cost push inflation is caused due to high dependence of the nation on imported items. As a result, if the price of the goods tends to increase in the international markets, then the same would also be reflected in Singapore market and hence would cause inflation. The demand pull inflation is the result of increasing population of Singapore due to high immigration low particularly from neighboring countries in Asia which leads to higher demand for products and services, thus fueling inflation (Ghosh & Yu, 2013).
Singapore’s monetary authority tends to regulate the currency exchange rate as the country is dependent on imports for critical items such as food. Further, in case of flow of foreign funds into the country, suitable intervention is made so that this money is absorbed in a prompt manner with adequate checks and balances so that the inflation remains in the acceptable narrow band (Bhaskaran, 2014). Additionally, fiscal measures such as subsidizing staple imports and providing tax rebates are also done especially at a time when inflation tends to be high (Das, 2014).
Conclusion
On the basis of the above discussion, it can be concluded that the Singapore during the last ten years has been able to sustain a healthy growth rate in GDP which has far exceeded the population growth rate. The GDP has indeed suffered shocks particularly due to the global financial crisis but through prudent government policy and underlying resilience of economy, the bounce back has been spectacular. Further, various types of unemployment tend to exist in Singapore but the level is highly stable primarily due to the government initiatives which promotes skill building and up-gradation to ensure that there is no shortage of skilled manpower. Also, inflation occurs both through demand and supply parameters and seems to be driven in cycles based on the trends of last ten years. But the country has been able to manage it well for the stabilization of the currency which is imperative for an export oriented economy.
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. ME Sharpe.
Mankiw, N. (2012). Macroeconomics. New York: Worth Publishers
McTaggart, D., Findlay, C., & Parkin, M. (2012). Macroeconomics. Frenchs Forest, N.S.W.: Pearson
Pigou, A. C. (2013). Theory of unemployment. Routledge
Simpson, B. (2014). Money, Banking, and the Business Cycle. Basingstoke: Palgrave Macmillan.
Tan, K. P. (2015). Singapore in 2014. Asian Survey, 55(1), 157-164.
Trading Economics (2016), 300,000 Indicators from 196 countries, Retrieved 27 July 2016, 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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