Economic analysis
Singapore

Singapore

Population 5,535 million
GDP per capita 52887 US$
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2014 2015 2016(f) 2017 (f)
GDP growth (%) 3.3 2.0 1.5 1.5
Inflation (yearly average) (%) 1.0 -0.5 -0.3 1.1
Budget balance (% GDP) 5.5 2.6 2.4 2.4
Current account balance (% GDP) 17.5 19.8 18.9 16.1
Public debt (% GDP) 98.5 104.7 106.4 105.7

 

(e) Estimate (f) Forecast

STRENGTHS

  • Very high competitiveness quality
  • Development of high added value sectors (chemicals, pharmaceuticals, finance)
  • Large FDI inflows thanks to the advantageous tax regime, political stability and an excellent business climate
  • Leading exporter of capital in Asia through the Temasek and Government of Singapore Investment Corporation (GIC) sovereign funds

WEAKNESSES

  • Economy dependent on exports
  • Shortages of skilled labour
  • Ageing population
  • Vulnerability to slowdown in the Chinese economy

RISK ASSESSMENT

The Singaporean economy is suffering from weak global trade

After slowing down in 2016, the Singaporean economy should level out in 2017. The economy, which is heavily reliant on international trade, is suffering from weak global demand. On top of this, the slowing and the restructuring of the Chinese economy will continue to impact on Singapore, with the city-state exposed to struggling sectors: oil and gas, semi-conductor and transport. Industrial output is thus likely to continue feeling the effects of reduced exports. The services sector however should continue to bolster activity despite reduced retail sales because of lower tourist numbers and the expansion of e-commerce.
Domestic demand will however help mitigate the external shocks. Despite a high level of debt, household consumption is expected to remain strong. Unemployment, despite a slight increase, should remain low and social transfers are expected to continue progressing. In addition, growth is likely to feel the benefits of inward foreign investments and the implementation of major infrastructure projects, such as the high-speed rail link between Singapore and Kuala Lumpur.
Inflation is expected to get back to moderate levels following the deflation recorded for 2015 and 2016. There was a significant slowing in price rises because of the sharp fall in transport related costs. The government also imposed macro-prudential measures aimed at curbing property and transport costs, the main elements in the price index. In 2017, the price index should return to the plus side, mainly as a result of a slow rise in oil prices which will increase transport costs. In this context, monetary policy is expected to continue to be targeted towards stabilising the Singapore dollar and could, in order to boost activity, allow a very slight depreciation in order to provide a boost for exports.

 

Resilient financial situation

The budget situation for Singapore will remain very sound. In 2017, with increasing revenues from the Temasek sovereign fund, the country will maintain its budget surplus even though the government is putting in place a large number of measures aimed at supporting investment in new technologies and infrastructures and improving social protection. In addition, whilst the public debt is at a high level, it will continue to be sustainable because it is mostly national. On top of this, debt is not being used to finance the public deficit but to develop a local government bond market. Finally, the level of public debt will remain below the value of the assets held by the two sovereign funds (Temasek and GIC).
In 2017, the current account balance will remain in surplus but is expected to contract as a result of a decline in exports. In this context, currency reserves will remain high (7.5 months’ imports) and continue to provide the country with the ability to withstand sudden capital outflows.
Singaporean banks are exposed to the slowdown in the Chinese economy through their trade finance operations. The exposure in terms of China now accounts for 25% of outstandings and the banks are also exposed to the oil and gas sector. A further deterioration in credit risk in China would pose a threat to the quality of the assets and could undermine investor confidence. Although the banks are exposed to property risk, the management of the risks associated with granting mortgage loans has been cautious and complies with the regulatory requirements. Nevertheless, the Singaporean banking system could prove to be exposed if the economic situation worsens. The rapid expansion of credit together with very high property prices effectively makes the sector vulnerable to higher interest rates. The banking sector nevertheless is likely to remain resilient: non-performing loans represented 1% of assets in 2015 and the banking system is well capitalised and regulated.

 

The ruling party confirms its domination ahead of the 2017 presidential election

In the September 2015 parliamentary elections, the People’s Action Party (PAP), the ruling party since independence in 1965, won almost 70% of the votes, compared with 60% in the May 2011 elections. It therefore further strengthened its domination of political life credited with the active policies of the government in the crisis and the maintenance of social stability. The next presidential elections will be held in mid-2017 and should see the victory of an ethnic Malay candidate. A Constitutional reform approved on 9 November 2016 lays down that a presidential election will be reserved for candidates of ethnic origins if these have not been represented by a President in the five preceding terms of office.
The country also has the best governance in Asia, thanks to an effective legal system for debt collection.

 

Last update: January 2017

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