Population 5.366 million
GDP 267.941 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
14.8 |
4.9 |
2.9 |
3.4 |
|
Inflation (yearly average) (%)
|
2.8 |
5.2 |
4.5 |
4.5 |
|
Budget balance (% GDP)
|
5.5 |
7.3 |
5.8 |
5.2 |
|
Current account balance (% GDP)
|
24.4 |
21.9 |
21.5 |
21.3 |
|
Public debt (% GDP)
|
101.2 |
107.6 |
106.2 |
103.4 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Very high quality-competitiveness
- Development of high value-added sectors (chemicals, pharmaceuticals, finance)
- Substantial foreign direct investment inflows thanks to a favourable tax system, political stability and an excellent business environment
- Major exporter of capital in Asia via its two sovereign funds, i.e. Temasek and Government of Singapore Investment Corporation (GIC)
WEAKNESSES
- Economy dependent on external demand
- Shortage of skilled labour
- Aging of the population
- Latent social tensions in a context of growing inequality and rise in long-term unemployment among the less skilled
Risk assessment
Slight recovery expected in 2013
After the exceptional rebound in 2010, the Singapore economy slowed in 2011 and 2012 due to the slowdown in international trade.
Growth is expected to rebound slightly in 2013, thanks to a vigorous domestic demand. However, exports, which represent 210% of GDP, will remain sluggish in the context of the crisis in the Eurozone, (which takes 7% of exports), weak growth in the United States and recession in Japan (which attract 5% of exports each). The manufacturing sector (electronics, engineering, pharmaceuticals and petrochemicals) will be particularly affected. Nevertheless, a healthy Asian growth is likely to cushion the shock, as Singapore sells an increasing share of its merchandise to its ASEAN neighbours (30% of exports in 2011). Moreover, services (financial services, tourism from Asian countries, transport) will perform well. Retail sales will also remain vigorous thanks to the resilience of household consumption and low unemployment (3%).
However, inflation will remain higher than the 2% pre-crisis average due to the increased cost of licensing a vehicle and on-going high rental costs. Though the measures introduced to limit the property bubble (tax on non-residents’ and businesses’ property purchases) have stabilised prices, rents remain high, as they are based on leases, which will be renewed only in the medium term. Moreover, upward pressures on wages are expected to intensify due to the restrictions on hiring foreign workers. In this context, the tightening of the monetary policy begun in April 2012 (faster appreciation of the Singapore dollar at 2.5-3% and narrower fluctuation range) is expected to continue. Its impact will, however, be limited because of the maintenance of a negative real interest rate and capital inflows linked to expectations of the Singapore dollar’s appreciation.
Strong financial position
After rising in 2011, the fiscal surplus fell in 2012 due to higher government spending under its programme to increase business productivity. This trend is expected to continue in 2013, as the authorities are keen to support investment in high technology, particularly by SMEs (tax exemptions, subsidies for continuing training) and to improve social benefits (health, education, financial assistance to the poorest households). Moreover, though public debt is high, it will remain sustainable because it is essentially domestic. Furthermore, public debt is not used to fund the public deficit but to develop a local government bond market. Finally, the public debt level remains well below the level of the assets of the two sovereign funds (Temasek and GIC).
The external accounts will remain broadly in surplus in 2013, despite the expected sluggishness of exports to western countries. In this context, foreign exchange reserves remain high so the country is well able to resist sudden capital flight.
Meanwhile, the banking sector will remain strong. Though the banks’ exposure to the property sector represents 40% of loans by the country’s three big banks, management of the risks associated with the granting of mortgage loans has been prudent and remains in line with the regulatory requirements. Moreover, the rapid growth of credit in foreign currencies to regional partners, in particular China, is essentially linked to trade finance, with sound collaterals in a context of the withdrawal of European banks from this activity. Finally, despite the withdrawal of the European banks, the banking system remains strong, thanks to a low rate of non-performing loans, effective supervision and high solvency and liquidity ratios. Basel III regulations will, moreover, have little impact on the banking system which is already well capitalised and regulated.
Political stability and quality governance
After its victory in the May 2011 general elections, the People’s Action Party credited with the government’s active policy regarding the crisis and with maintaining strong social stability, is expected to remain in power until 2016. Moreover, the country benefits from the best governance in Asia thanks to an efficient judicial system, which facilitates the recovery of loans and a high level of financial transparency.
Geographically, relations with Malaysia are expected to intensify due to growing investment opportunities in the Malaysian Iskandar project which aims to make the region an international industrial, trading and tourism metropolis thanks to the development of cutting-edge sectors such as information technology, biotechnology, health, education and tourism.
