Economy - overview

The philosophy of Singapore’s economic management is underpinned by two principles – (1) strong adherence to a free market economic system and (2) an active pursuit of outward-oriented economic policies. Economic management is undertaken at the macro level to identify problems or opportunities, and to set broad growth directions and strategies. Free market system Singapore adopts the free market system so that the local industries can respond quickly to market signals and adjust their strategies accordingly. This also ensures that the economy’s scarce resources are allocated efficiently. As a result of the openness, Singapore has benefited from the presence of foreign MNCs. They bring in capital; technology, management know-how and access to world export markets. With the free market system, Singapore allows open competition not only among domestic firms, but also from foreign firms and products. This ensures that local companies remain competitive without having to shut themselves out from external competition. Consumers also benefit from lower prices. Outward orientation The Singapore economy is open to the world, in trade and investment. This is both a matter of policy and necessity because of its size and limited resources. In 2005, Singapore’s trade to GDP ratio was 368%, the highest in the world. Singapore Government believes that growth depends much on freedom of trade and economic linkages among economies. On a regional basis, it is recognized that Singapore's prosperity depends on the prosperity of its neighbors and vice-versa. Singapore therefore works with like-minded countries within international and regional fora to advance the cause of free trade. The city nation supports proposals aimed at fostering trade among nations. Overview Singapore is a highly developed and successful free market economy and enjoys an open and corruption-free environment, stable prices, and a high per capita GDP. The economy depends a lot on exports, entrepot trade and re-exports especially in electronics and manufacturing. After the 2001-03 global recession, the slump in the technology sector, and outbreak of SARS, which cut down tourism and consumer spending - the government is attempting to make the economy less dependant on the external sector; though continuing efforts to establish Singapore as Southeast Asia's financial and high-tech hub. Fiscal stimulus, low interest rates, growth in exports and internal flexibility led to an 8.1 per cent growth in real GDP in 2004, the economy's best performance since 2000; which has dropped down to 5.7 per cent in 2005. Singapore’s manufacturing sector accounts for a third of the country’s GDP, worth SGD 194 billion in 2005. It is estimated that GDP grew 9.0 per cent in the first half of 2006, with the second quarter growth slowing 7.5 per cent from 10.6 percent in the first quarter. Citing strong growth in the global economy and with Singapore’s export demand on an upward trend, the International Enterprise Singapore (IE), is upbeat and has revised NODX outlook to grow between 10-12 per cent in 2006, from the 5-7 per cent prediction made in January. Total trade growth is now expected at 13-15 per cent compared to 8-10 per cent at the start of the year. Analaysts caution that high oil prices, rising interest rates and a cooling US economy (a major export partner) are risks that could undo the rosy picture. IE has made its 2006 forecast based on oil prices leveraging USD65 a barrel. Singapore’s GDP expanded 6.4 in 2005. It grew 9.0 year-on-year in the first half of 2006, with the second quarter slowing to 7.5 per cent from 10.6 per cent in the first quarter. And growth is expected to slow down further in the next half. The government’s growth target has been set at 5.0 to 7.0 per cent. Singapore’s August 2006 exports growth came in below expectation for a second month straight with Singapore’s non-oil domestic exports (NODX) growth slowing to 2.6 per cent from 8.4 per cent in July 2006. The slower NODX growth was attributed to weaker growth in both electronic and non-electronic exports. In July 2006, domestic exports of electronics products expanded by a slower 3.9 per cent as compared to the 4.9 per cent increase. Growth was supported by an increase in the export of ICs, telecom equipment, diodes and transistors while exports of disk drives and printers continued on a descent. Growth of non-electronic NODX also moderated to 1.4 per cent from 12 per cent in July 2006 owing to a plunge in domestic exports of pharmaceuticals. Growth of oil exports crept up 6 per cent in August from 25 per cent the month before largely because of higher oil prices. However, exports in volume terms declined by 7.0 per cent following a dip of 0.4 per cent in July 2006. The US, Malaysia and Thailand were the top contributing NODX markets for the month. Fast Facts Singapore accounts for more than 3 percent of India's global trade, and 36.5 percent of India's trade with ASEAN Singapore is currently India’s 11th biggest investor in the areas of telecom, fuels, food processing, chemicals, hotel and tourism Non-oil Re-Exports growth, on the other hand, increased 13 per cent in August 2006 from 10 per cent in the previous month with stronger expansion from both electronic and non-electronic re-exports. Latest Singapore has raised its forecast for this year’s economic growth between 7.5 and 8 per cent, despite a less than rosy global economic environment. Figures released by the Economic Development Board show that Singapore’s economic growth in Q3 2006 have exceeded the 7.1 per cent early estimate, after including September's stronger-than-expected 7.6% manufacturing output, despite fairly average growth in the key electronics, biomedical and chemical industries. September's manufacturing performance was driven mainly by the transport-engineering cluster, which accounts for about 10 per cent of total output and grew 45.7 per cent in Sept, after a revised 26.6 per cent growth in August. Key players in the marine and offshore engineering segment had good overseas orders for ships, oilrigs and oilfield equipment, Repairs of commercial aircraft also continued to rise with greater demand. In all, the marine and offshore engineering segment is expected to continue growing strongly through the year. Electronics output grew just 0.8 per cent in Sept, down from 7.2 per cent in August, with contractions in two key segments - data storage and computer peripherals. Biomedical manufacturing was also disappointing in September, with average growth in pharmaceutical output at 26.9 per cent. Excluding the volatile biomedical industry, industrial output grew 9.8 per cent in September, down from Augusts’ 11.1 per cent. Including the September data - and as indicated by three-month moving average growth - manufacturing output would have expanded some 10.6 per cent in Q3. *Compiled from data from the IE Singapore, the World Bank’s East Asia Update for March 2006 and the CIA World Factbook. Table I - Select economic indicators, 2005 est. Table II - Select key economic indicators, Q3 2006 Table II - Industrial and agricultural production