Singapore Economics Progress Report

Overview of Singaporean Economy

Type of Economic System

Singapore is a developed country with a free-market economy (Singapore Economy, n.d.).It encourages entrepreneurship and protects private property that promotes laissez-faire. According to the Index of Economic freedom, Singapore ranks first with a score of 89.4 out of 100 (2019 Index of Economic Freedom | Statistic, 2019). The score is based on the four sets of indicators; the rule of law (property rights and freedom from corruption), limited government (spending by government and fiscal freedom), regulatory efficiency (monetary and business freedom), and open market (trade and financial independence). Thus, government intervention is minimal in Singapore, and every individual can control their labor and property.

The openness of the Singaporean Economy

The below chart shows the degree of openness of the Singapore economy from 1960 to 2019. It indicates the extent to which an economy engages freely in the global trading system. It measures the sum of export and import as a percentage of GDP. The average value (1960-2019) was 329.03%, with the current value being 319.15%. According to the World Bank, the country ranks third in trade openness (Trade Openness, n.d.).

Figure 1.Chart showing trade openness of Singapore Economy.Source:theglobalecnomy.com

Two Key Indicators

The two industry sectors that have contributed to the Singaporean economy’s growth are manufacturing and wholesale and retail trade. In 2019, the manufacturing sector comprised 20.9% of the GDP (Singapore: Nominal GDP Breakdown by Sector 2019, n.d.). The manufacturing industry’s key industry clusters include electronics, chemicals, biomedical, logistics, and transport engineering. The wholesale and retail trade comprised 17.3% of the GDP (Singapore: Nominal GDP Breakdown by Sector 2019, n.d.).In particular, foreign wholesale trade is playing an increasingly dominant role in the industry because of the strong growth in re-exports and offshore trade. It is also the fastest-growing sector with real value being added averages 8.1% per annum since 2000 (Overview of Singapore’s Wholesale Trade Sector, n.d.).

Key Trading Partners

The top five key trading partners of Singapore include China, Hong Kong, Malaysia, the US and Indonesia. China tops the list that imported the most dollar value of goods in 2019. It comprised 13.25% of total of Singapore’s total exports (Singapore’s Top Trading Partners, 2020). The electrical and electronic equipment comprised a significant portion of Singapore export to China. Other equipments of export include machinery, plastics, nuclear reactors and boilers. Hong King also imports machinery, nuclear reactors, boilers, fuels and precious stones from Singapore.

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Measuring Macroeconomic Indicators

The trend in the RGDP shows the increase in the current GDP at market price since 2000.However, the growth in GDP slowed during the recession (2008-2009).

Fig 2.Trend in Annual GDP (million $) of Singapore. Source: Provided Excel

Fig 3.Annual Economic Growth rate.

Fig 4.Inflation rate (2001-2019)

Formula used to calculate the Inflation rate =

Economic Growth rate,

The inflation rate and growth rate are calculated in percentage with respect to the previous year. Therefore, the year 2000 is not taken into consideration as there is no data available for the year 1999.The economic growth rates have been significantly high for the year 2004, 2007 and 2010 with clear indication of the effect of recession on its growth rate. The average growth rate of the Economy was found to be 4.56%. Further, the trend in the inflation rate also fluctuates with average inflation rate being 1.59%.

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COVID-19 Impact

Many countries all over the world had not prepared to face COVID-19. Singapore have faced a severe economic crisis that have seen economies all over the world go down. Compared to the previous quarter (April-June), the Economy contracted by 12.6% (Lee, 2020). In Singapore, the international travel barn has had a detrimental effect on its Economy as the air transport business has go down. With the travel barn and, lock down imposed as COVID-19 precautionary measures, business has gone down in many sectors with the hotel and tourism sector having severe effects (Impact of the COVID-19 Pandemic on the Singapore Economy, n.d.). The city-state heavily relies on trade and tourism. Many individuals in the travel, tourism and, hotel sector have faced major salary cuts and even others have lost their jobs due to lack of tourists.

The demand for locally produced goods has reduced with the collapse of the international markets. Further, the supply that is directly dependent on demand has reduced. As a result, the manufacturing sector has gone down and, production reduced as companies are facing a major crisis with less sales currently. The downfall of the domestic Economy such as the local food sector has also seen many vendors and local wholesalers loose their income because of reduced demand and customers. With an increase in the outbreak of the virus, the construction sent has seen a contraction in demand with many of the workers being taken to quarantine.

Recommendations

In the light of the current COVID-19 situation, it is important that the government should be take appropriate actions to maintain the economic growth rate and inflation rate. First, the Singapore government needs to strengthen its task force across multiple government agencies. These task forces would help in co-ordinating and messaging during any future pandemics. Next, the designated health preparedness clinics needs to be strengthened with more primary care physicians across clinics. These physicians should be trained to prepare for such outbreaks. This would help the government in managing its volume of health system quickly and efficiently. Technological advancement is another area where the government should focus for long-term economic prosperity. Thus, funding towards research and development should be increased. In 2017, the expenditure on research and development was $5.7 billion. Currently, the country spends about $5.7 billion in engineering and technology (Singapore: R&D Expenditure by Area of Research 2017, n.d.).These three measures would surely assist the Singapore government in attaining the objective of long-term economic prosperity and economic recovery from COVID-19.

References