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.
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