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Economical situation in Singapore since its separation from Malaysia

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Singapore is a small country with a population of 5.6073 millions people. Since its separation from Malaysia, it has proved itself to be one of the fastest ever growing nation, becoming a first world country without any natural resources. Her economy is considered one of the most competitive among the all the developed country, boasting a large workforce and ability to adapt to changes by using technology for its conveniences. Although she is a developed country with a powerful economy Singapore also experiences different economic issues such as retrenchment and rise in price for goods and services Hence, our group will be presenting 3 issues on Singapore’s economy to let us know in dept about the current state of Singapore’s economy and what are the causes of it.

1.Inflation

Singapore’s inflation has been rising gradually in year 2018.

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In March, 2018, the headline consumer price index (CPI), which measures the changes in current dollar value and purchasing power, rose by 0.2 percent. This rise in CPI was slower than expected median forecast which was 0.5 percent. This increase was probably reasoned out to the fall in the cost of private road transport of 0.6 percent.

According to MTI (Ministry of Trade and Industry Singapore) and MAS (Monetary Authority of Singapore) , the reason for the fall of private road transport is due to the fall of Certificate of Entitlement (COE) premium. After secondary research,the “ COE quota”, which monitors and controls the number of vehicles on the road, will be at 0 due to the lack of COE’s given to drivers. This is because the Land Transport Authority (LTA) aims to control the number of cars on the road due to Singapore being a land-constrained country. Since LTA is unable to increase the number and size of roads in Singapore, they came to this decision to put the COE quota at 0. Also, the number of car owners that chose to scrap or de-register their cars has decreased, adding to the fact that there are a lack of COEs going around drivers. The lack of COE’s going around can bring about a demand-pull inflation, causing the COE prices to increase steadily as drivers compete with each other. As the price of COEs increase, this can bring about a cost-push inflation, which causes people residing in Singapore to be pessimistic in purchasing cars, let alone COE.

When comparing the inflation rates of March and February, the services inflation slowed to 1.4 percent due to the smaller increase of prices of air tickets and costs of holidays.

The food inflation slowed to 1.4 percent from 1.5 percent This is caused by a smaller increase in prices of uncooked food items and home-cooked food. Nevertheless, the food inflation can be brought about by various factors such as:

  1. Upcoming GST hike,
  2. The increase in the electricity tariffs which will be in place from July to September,
  3. Hike of water bills by 30 percent which will take place in July.

The GST hike can cause food businesses or even supermarkets such as NTUC and Giant to increase the prices of their uncooked food products. This is because these companies need to pay additional business taxes to the government. Hence, in order to make profits, they have to increase the price of their products.

The increase in electricity tariffs can too affect many businesses ranging from those selling cooked food such as restaurants to uncooked or home-cooked products such as supermarkets. As these businesses require a lot of electricity to operate, they will be greatly affected by the increase by 6.9% of electricity tariffs. Hence, the price of their products would gradually rise to in order to cover up the money lost when paying for the escalated bills, contributing to inflation in Singapore.

The hike in water bills can too cause food inflation. According to the finance minister, Heng Swee Keat, the water prices in Singapore would increase by 30 percent in July 2018. Businesses affected by this hike are most probably from wet markets where they require a lot of water to operate uncooked food too. The hike in water taxes can cause their profits to decrease by more than 30 percent as customers may be discouraged from purchasing from wet markets, knowing that prices of food will be inflated. Hence, in order to cope with this change, business owners of stalls at wet markets can inflate the prices of their food to earn back the potentially lost profits.

The cost of accommodation slowed to 3.4 percent from 3.6 percent due to the fall in the cost of renting houses. According to research, the home vacancy rate is higher than 11%. This is due to home sellers holding back home launchers in order to gain more money out of these houses. In order to control the inflated prices of private accommodation, demand management measures have been in place and the number of Build-To-Order (BTO) HDB flats and private residential homes have increased.

In addition, the core inflation, which excluded accommodation and private transport, increased by 1.5 percent as compared to the previous month of 1.7percent. According to MAS, the core inflation is expected to rise gradually in the second quarter of 2018.

In order to mitigate the impacts of inflation on households in Singapore, the government is providing incentives such as the pre-existing GST Voucher Scheme and U-save rebates. This is to help unload the pressure from the utility bills such as the increasing electricity tariffs and water bills. Workers in Singapore can expect pay increments in 2018 by approximately 2.7 percent according to human resource firm ECA International to counter the inflation.

The follow bar chart below represents the changes in the inflation rate in Singapore between February and March.

2. Gross Domestic Product ( GDP )

Singapore’s great interest in electronics, allowed the economy to do very well in 2017, exceeding expectations. A full-year’s GDP growth is expected to range from 3 per cent to 3.5 per cent. Similarly, its current neutral monetary policy stance announced in October 2017 will remain the same. Prime Minister Lee Hsien Loong’s made comments on how it is possible that singapore’s economy will expand by more than 3 per cent in 2017. Private-sector economists also predict an increase as there has already been three consecutive quarters of growth. Singapore’s economy grew by 5.2 per cent year on year in the third quarter, once again led by the manufacturing field. This is faster than the past growth of 2.9 per cent in the previous quarter and the best since the economy grew 5.4 per cent in the fourth quarter of 2013. On a quarter-on-quarter seasonally adjusted basis, the economy expanded by an astounding 8.8 per cent, accelerating from 2.2 per cent in Q2. The headline figure of 5.2 per cent was revised upwards from October’s advance GDP estimates of 4.6 per cent.

Singapore’s gross domestic product (GDP) rose 4.4 per cent in the first quarter this year, much better than the 4.3 per cent advance estimate that was announced earlier this year, this is supported both fields of manufacturing and services’ growth. Other positive changes such as a rise in value in workers and decrease in unit labour costs were noticed. The widening in growth from external-oriented sectors should boil down to the domestic economy, which in turn should lead to more contribution, Mr Song said. He added that the external environment continues to give positive surprises, and this could help lift Singapore’s economy into 2018, with Europe set to continue to expand and the United States looking like its economy is still chugging along.

Stronger growth expected for global economy in 2018. Global economic sentiment has become very much more favorable this year – an assessment endorsed by most international organisations. The broad recovery in investment, manufacturing and trade is good news for Asia’s trade-dependent economies – including Singapore – which has benefited from the ever strengthening global economy. While there are some short-term risks, including financial stress and rising geopolitical tensions, the more important question now is how long this pickup will last. There are still rising concerns over longer-term challenges like weakening productivity and ageing populations.

The positive outlook is supported by the latest data from the world’s largest economy, was reported that Americans attained a colossal personal spending in the last two months of last year (2017). US retail sales rose to US$691.9 billion (S$915 billion) in November and December, a 5.5 percent increase. This is good news for Asia, a big manufacturer and exporter of goods to the United States. But longer-term challenges remain, the World Bank noted.These include subdued productivity and potential growth, as well as the ageing of the global workforce.

How does demand from China increase Singapore’s GDP?

3. Unemployment

Singapore jobless rate is considered low compared to other countries standards but it could increase further as the economy faces similar pressures seen in other developed countries. According to Prime Minister Lee Hsien Loong during his May Day speech, as compared to other countries, Singapore’s unemployment is redeemed as low.

However, due to pressures in existing developed countries including Singapore, the unemployment rate can be expected to increase. Prime Minister Lee Hsien Loong stated that unemployment went up the previous year and even with better growth in 2017, the Government expects a “steady trickle of redundancies” as the economy continues to restructure.

He also stated that many developed countries are facing unemployment of a higher rate compared to Singapore. As mature economies face the same pressures as Singapore, the overall unemployment rate will gradually increase. Economies face pressure from incomplete recovery of ageing population and workforce and technological changes. Even though the economy stays stuck in low gear there is a diminishing job market slack. The March unemployment rate is at a 4.5 percent which is the lowest since 2007.

Having non or minimal unemployment in a working developed country is not possible. “In any healthy economy, there will always be people switching jobs or graduates joining the labour force so there will always be some degree of frictional unemployment,” explained Nomura economist Brian Tan. “This in itself is not a problem… because it is impossible to have a zero percent unemployment rate, which is a common misperception.”

Cyclical downturns or Movements in industries which render jobs and skills obsolete will also lead to structural unemployment , This is due to a mismatch in the skills of a worker and those required by an employer. Singapore has a low unemployment as it has a small and educated workforce, also extensive planning by the Government to ensure the economy stays on the right track.

Mr Song Seng Wun, regional economist at CIMB Research stated that “We have a very thoroughly planned economy and that’s why we are able to stay relevant. Even though we are a tiny city-state, we have managed to attract foreign investments that create business opportunities and jobs that are more than enough for our local labour force,” labour economist Walter Theseira from the Singapore University of Social Sciences (SUSS) said that A sizeable proportion of foreign workers in Singapore has also provided some “buffer for unemployment”.

Singapore’s unemployment rate in the first quarter of the year was 2 percent, which is 0.1 per cent lower than in December of last year (2.1 per cent), according to the Ministry of Manpower (MOM) on Friday (Apr 27). Retrenchments also fell to 2,100 which is the lowest in nearly seven years.

The unemployment rate for residents fell from 3 percent to 2.8 percent, this was a decrease of 0.2. However, it remained unchanged at 3 percent for Singapore citizens, according to an advance release of the first-quarter labour market report.

The reason for this because of a lower labour force participation rate among those in the 15-24 year old age bracket. Post-Brexit, domestic economic restructuring and slowing local labour force growth will likely constrain job creation,” In June, an estimated 68,300 residents, including 60,300 Singaporeans, were unemployed. This was higher than the 60,400 residents, including 50,800 Singaporeans, who were unemployed in March.

Singapore used to follow a labour-driven economy technique in the past to accelerate the growth of the economy before switching to a more productive-driven approach enrich its workers with more skills and knowledge. However, to enhance its competitiveness, Singapore’s economy is rapidly changing to higher value-added, niche occupations– like medical technology and data analytics. While these allow more new job opportunities and expands the work field, many workers from other fields like managers, entrepreneurs, technicians (PMETs) do not have the relevant skills needed to change careers, leaving them behind as the economy grows.

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