Why the sus­tain­abil­ity of the eco­nomic growth is ques­tion­able

Singapore Business Review - - CONTENTS -

It may look like the Sin­ga­pore econ­omy is fi­nally pick­ing up with ex­ports show­ing ro­bust growth and GDP stay­ing well above ex­pec­ta­tions. But as far as an­a­lysts are con­cerned, there is not much rea­son to cheer as th­ese good-look­ing fig­ures are ques­tion­able. “The Mon­e­tary Au­thor­ity of Sin­ga­pore ac­knowl­edged the uptick in ex­ter­nal ac­tiv­ity in its lat­est Macroe­co­nomic Re­view and ex­pects growth in 2017 to be an­chored by trade-re­lated sec­tors, mainly driven by It-re­lated seg­ments,” says Ed­ward Lee, head of ASEAN eco­nomic re­search at Stan­dard Char­tered Bank Sin­ga­pore.

“Nev­er­the­less, the cen­tral bank also ac­knowl­edged that the pick up in man­u­fac­tur­ing ac­tiv­ity was driven pri­mar­ily by the semi­con­duc­tor and pre­ci­sion in­dus­try seg­ments, stat­ing that any re­cov­ery in the rest of the man­u­fac­tur­ing sec­tor likely re­mained patchy. We be­lieve this phe­nom­e­non re­flects a lack of broad-based de­mand be­hind the ro­bust growth num­bers. We have re­it­er­ated this view since the start of the year and re­main cau­tious about the sus­tain­abil­ity of such ro­bust per­for­mance,” he adds.

On the con­trary, Zhix­i­ang Su, an econ­o­mist at Mor­gan Stan­ley, be­lieves that there may still be eco­nomic rea­sons for Sin­ga­pore to re­sume pop­ping the cham­pagne. Po­ten­tial GDP growth, he says, could av­er­age 3% over the 2016-2030 pe­riod.

Ad­dress­ing labour force par­tic­i­pa­tion

Ac­cord­ing to Su, Mor­gan Stan­ley’s es­ti­mates are based on the fol­low­ing: they in­cor­po­rate the Pop­u­la­tion White Pa­per as­sump­tion that work­ing age pop­u­la­tion growth will slow to an av­er­age of 1.5% be­tween 2016 and 2020 and 1.0% be­tween 2020 and 2030. “How­ever, we as­sume that pol­icy ef­forts to com­bat the slow­down in im­mi­gra­tion pol­icy by lift­ing the labour force par­tic­i­pa­tion rate bear fruit. The labour force par­tic­i­pa­tion rate in­creases at a 20Y his­tor­i­cal av­er­age run-rate, tak­ing it from 67.7% in 2015 (de-trended) to 70.7% in 2030, as the higher de­pen­dency ra­tio, longer mor­tal­ity, and ris­ing re-em­ploy­ment age urge greater labour par­tic­i­pa­tion,” says Su. “This will lead growth in the work­ing pop­u­la­tion to rise by 1.8% YOY be­tween

2016 and 2020 be­fore mod­er­at­ing to 1.3% YOY be­tween 2020 and 2030 (ver­sus a 20Y av­er­age of 2.8% YOY),” he adds.

In the near term, Su adds that he sees up­side risks to his base case GDP fore­cast given how the cycli­cal re­cov­ery, driven by im­prov­ing ex­ter­nal de­mand and man­u­fac­tur­ing out­put, is play­ing out. “Our bull case GDP fore­casts for 2017/2018 are 2.3%/2.8%. Over the longer term, we think po­ten­tial GDP growth in Sin­ga­pore will av­er­age 3.0% for 2016-2030, which will still re­main at a pre­mium com­pared to other ad­vanced economies. Our medium-term po­ten­tial GDP growth es­ti­mate is in line with pol­i­cy­mak­ers’ growth tar­get as set out in the Com­mit­tee on the Fu­ture Econ­omy (CFE) re­port, which stands at 2-3% over the next decade. We elab­o­rate on our po­ten­tial GDP growth es­ti­mate be­low,” he ex­plains.

He fur­ther ex­plains that the im­prov­ing eco­nomic out­look would help drive an in­flec­tion in home prices come 2018. “Prop­erty mar­ket bears ex­pect slower pop­u­la­tion growth, an age­ing pop­u­la­tion, and a struc­tural growth slow­down to weigh on the long-term prop­erty mar­ket out­look. We dis­agree and be­lieve home prices will dou­ble by 2030,” Su adds.

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