Singapore Economic Situation

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Janet Morris

10:49pm Thursday 29 July

• Key Facts
• Political Situation
• Economic Situation
• Foreign Relations

Singapore Economic Situation

Increased regional competition, an aging population, and the need to upgrade and restructure its manufacturing sector are the three key challenges facing the Singapore economy. Singapore's economic policies are aimed at maintaining Singapore's role as a major trading centre in Asia.

Singapore's fiscal policy is designed to ensure that the economy continues to move up the value-added chain. The Singapore 2008 Budget, focused on enhancing education and training opportunities, fostering innovation, maintaining competitiveness by supporting the growth of SMEs and strengthening Singapore 's role as a financial and business hub. 

Fallout from the global financial crisis and economic slowdown has caused the Singapore Trade and Industry Ministry to downgrade its growth targets for the year to 3 percent from 4-5 percent. This follows contraction of the economy throughout the first part of the year.

Inflation has risen sharply since late 2007, hitting 26-year highs of 7.5 percent in April, May and June 2008. High levels of inflation are forecast to continue before declining to 2-3 percent in 2009.

Unemployment is expected to increase beyond the 2.1 percent recorded in 2007.

Despite high costs, Singapore remains attractive to investors who are concerned about stability in the region. The World Bank rates Singapore (ahead of New Zealand) as the world's best place to do business. According to the Economic Development Board (EDB), there are more than 7000 multinational corporations in Singapore, and 4000 of these have regional headquarters responsibilities. Attracting further companies to establish or expand their operations in Singapore is a key part of Singapore's economic strategy.

With Singapore's limited size and resources, outward investment, particularly into the region, is an important part of its external economy. Singapore's projects overseas focus on real estate development, tourism, logistics, planning and management, and include infrastructure projects and industrial parks. Key projects include the Viet Nam-Singapore Industrial Park, the long-established Batam Industrial Park and the newer Bintan Industrial Estate in Indonesia, the Bangalore Information Technology Park in India and the Wuxi-Singapore Industrial Park in China. Under its Free Trade Agreement with the US, its industrial parks in Batam and Bintan are effectively recognised as extensions of Singapore's manufacturing base.

In line with Singapore's push to be a premier research hub in Asia, PM Lee announced in March 2008 that S$1.2 billion would be channelled to the research sector. Singapore has also unveiled an S$350-million blueprint to be a key player in the fast-growing clean energy industry. As part of this push, Singapore aims to be a testing ground for new technology such as the latest solar panels or fuel cell engines. The blueprint has three key planks encompassing the nurturing of a cluster of large and small businesses, the development and testing of new technology, and marketing of exports overseas. This new industry is expected to add S$1.7 billion to GDP each year and create 7000 jobs by 2015.