Sin­ga­pore’s dis­ci­plined plan for eco­nomic resur­gence

The fourth quar­ter of 2016 saw man­u­fac­tur­ing bounce back, and signs point to the surge spilling over into the first half of 2017.

Singapore Business Review - - ECONOMY WATCH -

When the lat­est Sin­ga­pore Bud­get was pre­sented by Fi­nance Min­is­ter

Heng Swee Keat, it in­cluded a $2.4b al­lo­ca­tion to im­ple­ment strate­gies to trans­form the econ­omy for the fu­ture, and showed the gov­ern­ment’s re­solve to bear short-term pain to reap long-term gain. The plan is clear: Just sur­vive through the global head­winds and limp­ing do­mes­tic de­mand that an­a­lysts be­lieve will per­sist in 2017, and wait for the coun­try’s eco­nomic re­struc­tur­ing in­vest­ments to slowly lift its sag­ging sails. Band-aid mea­sures in­clude front­load­ing $700m in pub­lic in­fra­struc­ture projects, which should help re­duce do­mes­tic slug­gish­ness, as well as con­tin­ued sup­port for trou­bled sec­tors like ma­rine and offshore.

Sin­ga­pore faces a rough year, es­pe­cially if US trade pro­tec­tion­ism gath­ers full steam. Ed­ward Lee, head, ASEAN eco­nomic re­search at Stan­dard Char­tered, fore­sees a risk that the US gov­ern­ment will im­pose tar­iffs on Chi­nese im­ports, which can set off a de­bil­i­tat­ing domino ef­fect on the Sin­ga­pore econ­omy.

“Since his elec­tion cam­paign, Trump has been vo­cal about pun­ish­ing China for what he has called cur­rency ma­nip­u­la­tion and un­fair trade prac­tices,” says Lee. “We be­lieve that in such a cir­cum­stance, China could re­tal­i­ate with sim­i­lar mea­sures, tar­get­ting US ex­ports to China and re­strict­ing their ac­cess to China’s ser­vices sec­tor.”

Im­pli­ca­tions for Sin­ga­pore

If the two ma­jor pow­ers en­ter into a heated trade war, global eco­nomic growth should de­cel­er­ate and dash Sin­ga­pore’s ef­forts to re­cover from its slump. A fall in eco­nomic growth in the US and China will trans­late to a fall in de­mand for goods and ser­vices. This will pull down Sin­ga­porean ex­ports to both na­tions, which com­bined ac­count for roughly 24% of non-oil do­mes­tic ex­ports. Sin­ga­pore also stands to lose its com­pet­i­tive edge fol­low­ing a more pro­tec­tion­ist trade stance from the US.

“Should the US im­pose tar­iffs across im­ports from all na­tions, there would be a di­rect neg­a­tive im­pact on Sin­ga­pore as our ex­ports to the US be­comes more ex­pen­sive and less com­pet­i­tive,” warns Lee. He also cites the French elec­tions as well as Brexit de­vel­op­ments as po­ten­tial risks that could lead to global weak­ness, and hurt Sin­ga­pore’s small and trad­ede­pen­dent econ­omy.

Chia Shuhui, se­nior Asia an­a­lyst at BMI Re­search, reck­ons that a po­ten­tial rise in trade pro­tec­tion­ism is one of the most per­ti­nent threats to Sin­ga­pore’s econ­omy this year. The coun­try also needs to be wary of the Chi­nese econ­omy’s acute slow­down.

“We main­tain a slightly neg­a­tive view on the Sin­ga­pore econ­omy in the near term due to ex­ter­nal and do­mes­tic head­winds,” says Chia of his coun­try fore­cast for 2017. “The slow­ing Chi­nese econ­omy will weigh on Sin­ga­pore’s ex­ports, whilst the do­mes­tic re­struc­tur­ing process will re­sult in a fall in near-term pro­duc­tiv­ity as firms ad­just.”

The lo­cal fo­cus

Sin­ga­pore has recog­nised the need to shift from an eco­nomic en­gine heav­ily de­pen­dent on for­eign labour to one pow­ered by glob­ally com­pet­i­tive do­mes­tic com­pa­nies em­ploy­ing skilled lo­cal work­ers. As such, the Sin­ga­pore gov­ern­ment con­tin­ues to spend more re­sources fast-track­ing its eco­nomic re­struc­tur­ing than stim­u­lat­ing do­mes­tic ac­tiv­ity. Over the next four years, $2.4b of the na­tional bud­get will be spent on the Com­mit­tee for the Fu­ture Econ­omy ini­tia­tives rang­ing from nur­tur­ing cor­po­rate in­no­va­tion to re­train­ing em­ploy­ees.

“A con­sid­er­able pro­por­tion of the bud­get was ded­i­cated to ad­dress­ing Sin­ga­pore’s long-term eco­nomic growth prospects in­clud­ing en­sur­ing con­nec­tiv­ity, en­cour­ag­ing in­no­va­tion, and the con­tin­ual devel­op­ment of skills, and mea­sures have been laid out in the bud­get to achieve these aims,” says Chia. “These mea­sures will help shift the econ­omy to­wards one that is driven by pro­duc­tiv­ity and knowl­edge-based gains in­stead of for­eign labour.”

Still, there has been an ef­fort to ease the tran­si­tion. Lee notes that for short-term sup­port of the econ­omy, one of the mea­sures in the Sin­ga­pore Bud­get en­tailed bring­ing for­ward $700m of pub­lic in­fra­struc­ture projects. “The front-load­ing of these

Over the next four years, $2.4b of the na­tional bud­get will be spent on the Com­mit­tee for the Fu­ture Econ­omy ini­tia­tives rang­ing from nur­tur­ing cor­po­rate in­no­va­tion to re­train­ing em­ploy­ees.

Mea­sures in­clude front­load­ing $700m in pub­lic in­fra­struc­ture projects

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