Macroeconomics encompasses economic studies on the aggregate properties and performance of an economy. Thus, it focuses on alterations in economic indicators such as unemployment index, gross domestic product, and inflation and growth rate. Governments and business organisations use macroeconomic models during the formulation of economic policies and strategies. GDP represents the aggregate value in dollars, of all industrial output within an economy over a defined period, in comparison with the previous period. Thus, a country's GDP signifies its economic performance over a specified period, notably annually or quarterly. Annual reports are the benchmark for economic size, while quarterly reports track economic growth. This paper seeks to present for consideration, an analysis of Singapore's macroeconomic position, particularly the GDP. A discussion on the policies adopted by monetary and fiscal authorities to govern formulation of strategies for the near future follows. Finally, there are recommendations proposed on the best economic approach going forward.
ASSESSMENT OF SINGAPORE’S CURRENT GDP
Gross Domestic Product
In the decade preceding the Great Recession, 1999 to 2007, Singapore’s GDP grew by 6.0% on average (Siddiqui 2010, p.1).The great recession was attributable to a 0.6% decrease in economic growth in 2008. Nevertheless, the economy recovered by 2010, to post an impressive growth rate of 15.2%. According to IMF, the post-recession economic growth track has been sustainable. This consistency is manifest by the 4.1% average growth rate between 2011 and 2013, which represents GDP growth from US$100 billion in 2000 to almost US$300 billion in 2013 (Statistics Singapore 2018).
Nevertheless, a strong 5.5% growth by the end of Q3 in October 2017 preceded a decelerated 3.6% 4Q17 growth rate. Nonetheless, a 2.6% growth rate was forecast between 2018 and 2022 (Ministry of Trade and Industry Singapore 2018). Analytically, the 2.6 % rate of growth is in trend with other big players in global economics: USA’s average GDP was 2.3 % for all of 2017. However, this forecasted rate can be considered as a significant gap of 1%, from Singapore’s previous average growth. According to Schwab (2010), the ideal GDP is between 2-3%. Thus, Singapore’s persistent 4.1% was worrisome, as it portended eminent overheating due to an economic bubble of some sort. But since the predicted rate is positive and within the ideal range, this manifests pursuance of functional regulatory measures within the economy.
Figure 1- the Yearly fluctuation of Singapore’s gross domestic product (GDP) in %.
Source: Singapore Ministry of Trade and Industry (Online). Accessed https://www.focus-economics.com/country-indicator/singapore/gdp
Net Trade
Singapore’s net trade is representative of the difference between total imports and exports. Notably, the tremendous growth of this economy depends significantly on the unprecedented inflow of Foreign Direct Investment. This is because the outward-oriented development strategy creates an enticing investment environment, which promotes economic productivity. According to MTI (2018), increasing economic productivity is the sure way to promote economic growth. Notably, Singapore's trading strategy follows the entrepot strategy, whereby there is the predominant importation of raw materials or finished goods (Rodan 2016). Then, these raw materials are manufactured into finished products. On the other hand, the imported finished goods are processed further or repackaged for exportation. Consequently, they are priced higher, resulting in larger economic gains.
Additionally, the shift from manual labour-oriented industrial production to quality-oriented technology-driven output has a significant impact on trade (Rodan 2016). For instance, this represents a substantial reduction in labour costs translates into higher profitability for organisations. Also, the tremendous growth of the service industry contributes significantly to the total GDP. Rodan (2016), states that services currently account for three-quarters of total GDP. The prominent contributors to the tertiary service industry are banking and financial services, retail, and transportation. The manufacturing industry contributes 25% of total GDP. Manufacturing encompasses electronics, chemicals, oil refining and biotechnology (Schwab 2010).
According to MTI (2018), gross exports of products and services is attributable to an approximate 50% economic growth. On the other hand, gross consumption, both private and public accounted for the remaining 50%.Nevertheless, policy-induced regulation and transitional effects of economy-restructuring strategies have caused a considerable reduction in the rate of private investment (Ichiro 2011).
In conclusion, GDP is the summation of Consumption (consumer + Business), Investment, Government expenditure and Net exports (Exports-Imports), or GDP equals C+ I + G+ Net exports (Johnson & Noguera 2012, p.224). Consequently, Singapore’s net trade becomes I and C predominantly. This is because of an actual increase in the trade surplus, from 17.5% in 2012 to 18.3 % in 2013 (Costanza, Kubiszewski, Giovannini, Lovins, McGlade, Pickett, Ragnarsdóttir, Roberts, De Vogli & Wilkinson 2014, p. 283). Such a net trade indicates a surplus in the balance of payments, necessitating some form of stimulus for the economy.
Other Indicators
Although low compared to other high-performing economic peers, Singapore’s unemployment rate has risen recently. According to the 4Q17 reports, the unemployment rate stands at 2.1%, which is in line with estimates (Furuoka 2012, p.135). Notably, this unemployment is attributable to challenges in the local labour market, due to an upsurge in retrenchments, especially in manufacturing and construction industries. According to Furuoka (2012), the increase in unemployment is caused by local economic restructuring and changing global economic policies (p.138). Therefore, the ensuing slowed state of economic development and disruptive technological changes promote a steady trickle of redundancies (Constanza et al. 2014, p. 284). This rising unemployment serves as an early warning for potential economic overheating.
On the other hand, Singapore’s inflation for January 2018, calculated using the Consumer Price Index came at 0.0% down from 0.4% (MTI 2018). MTI indicates that these low rates were a result of prices reduction for housing, owing to the outlay of Service and Conservancy rebates and the recreational end-year culture.
Notably, most countries struggle to maintain a business-friendly inflation rate of 2-3% annually (Gerlach &Tillmann 2012, p.360). This is because it eradicates challenges of paying for commodities among households and manages the problem of deflation effectively. Therefore, Singapore's inflation indicator is slacking, as it is significantly low to indicate any form of overheating.
Figure 2- the Yearly fluctuation of CPI in %.
Source: Singapore Department of Statistics and FocusEconomics calculations (online). Accessed < https://www.focus-economics.com/country-indicator/singapore/inflation>
POLICIES ADOPTED BY MONETARY AND FISCAL AUTHORITIES
Monetary and Exchange Rate Policy
The Monetary Authority of Singapore (MAS) has maintained its moderately tight regulation of monetary policy. According to MAS, the policy stance is that the gradual nominal effective exchange rate appreciation should remain unchanged, at the bandwidth of 2.5%, +/- 2% (Ichiro 2011). Consequently, the vastly open Singaporean market, which is highly susceptible to multiple external shocks moves within this band without frequent adjustments to facets of the exchange rate and monetary policy.
Macroprudential Policies (MaPs) and Fiscal Regulation
MAS adopted two-phase property market measures in 2012 and 2013, to foster sustainability of the properties market (MTI 2018). The 2012 restriction of the tenure on loans granted by financial institutions to facilitate the purchase of residences served to promote household deleveraging. According to (Rodan, 2016), this is because loan duration was capped at 35 years in addition to the imposition of stiffer loan-to-value limits on loans exceeding 30 years. Also, interest rates on loans granted to non-individuals for purchasing households were decreased to 40%.
In 2013, MAS reduced LTV limits for existing individual debtors significantly, as persons having more loans enjoying lower LTVs. Loans with longer durations had their LTVs tightened further, and housing loans for non-individuals were lowered further (MTI 2018). These MAPs have had the following fiscal impacts: high praise for the efficient financial regulation and supervision exhibited by Singapore, and increased overall compliance. Secondly, the country is recording a much-needed deceleration of credit growth to residents, owing to the tightening of multisystem liquidity through the application of MAPs. Household deleveraging, which makes the purchase of housing more affordable and allows debtors to renegotiate payment plans (Chang, Chen & Leung 2012, p. 516). Finally, corporations’ leverage has remained low in the face of rising corporate indebtedness. This is because of the favourable borrowing terms for corporations imposed by MAPs.
Financial Policy and Economic Restructuring
Singapore has maintained a very prudent fiscal policy framework, which promotes the intensive buildup of intensive financial buffers (Angelini, Neri & Panetta 2011). This is predominantly promoted by the maintenance of a balanced budget over political cycles, to allow long-term investment and income generation from public assets, and regulated government expenditure. Moreover, budgetary allocations are synchronous with population needs. For instance, there is less alarm due to the ageing population, as more funds have been directed to health costs for the elderly. Moreover, measures are put in place to expand the social safety net productively, given the problem of an ageing population.
Conclusion
In conclusion, Singapore's GDP is central to its high rank among mature global economies. The adoption of liberal policies and open market systems promoted international trade, which spurred an unprecedented rise in GDP for a decade. Notably, efficient fiscal policies and regulation were central to the fast recovery from the great recession. Also, and I and C net trade, coupled with fiscal, regulatory programs and MAPs, as well as exchange rate control culminate in a functional safety net Singaporeans. This safety net facilitates the purchase of households and enables the country to deal with the challenge of an ageing population.
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