Singapore’s economy grew by 6.1% in 2nd Q’07 on account of strong manufacturing sector performance and good external demand for semiconductor and hardware equipments. The recent efforts by the Singapore government to restructure Singapore’s economy into a more service driven sector has seen a lot of mega projects going underway, such as the Mega Integrated Entertainment Complex cum resort at the marina bay which will host some casinos and gaming resorts. Analysts forecast a five year GDP growth rate around 4.9- 5% based on external demand for electronics components, low inflation and a strong performing financial sector. Singapore $ has seen a modest appreciation which is trading around 1.52/US$, as against an 8% appreciation the previous year. Singapore’s rapid growth led by strong export and financial sector performance buffered the weaknesses in the electronics sector somewhat diversifying from the core component business activities. FDI flow to Singapore accounted for USD 20 billion in 2005 according to UNCTAD, compared to US$14.8 billion inflows in 2004.
Singapore has no natural resources and the whole city state is highly urbanized with one of the largest industrial base in Asia, the Jurong Industrial hub boasting around more than 3,000 companies and industries in the South East Asian belt. According to one recent poll by the WB and the IFC, Singapore has been voted as the most business friendly economy in the world. The government’ effort to promote the city-state as one of largest financial hub in Asia has met with success and there has a tremendous competition with its peer, Hong Kong, the largest financial hub in Asia ex-Japan. The service sector growth has been impressive with 8.4% y-o-y Q2’07 from 7.3% in last year. Singapore is the world’s 4th largest currency trading center. Singapore’s industrial production rate slowed down a little in electronics manufacturing sector, and effects of a moderating US economy could hurt the export sector further. One of the world’s largest oil refining and logistics centre and the second largest aviation hub in the world, Singapore is trying hard to counteract the global inflationary pressure that affected the city-state’s consumer price index. The electronics sector mainly thrives due to the North American/European orders of chip equipments and semiconductor related components. The government of Singapore has recently announced some tax-relief packages, which some analysts believe would turn government’s budget surplus into a deficit.
There has also been a rise in housing costs in Singapore after a prolonged housing price decline.
Key Risks to Singapore’s Economy:
· Global and US recession could slow down the export demand
· Rising Housing costs
· Inflationary Pressures
· Exchange rate fluctuation
· Weakening Electronics sector
· Lack of natural resources
· Strong competition from neighboring Malaysia and Hong Kong
· Avian Flu
Positive Indicators:
· Strong financial sector performance
· Strategic Location
· Economic diversification
· Sound and corruption free business environment
· Low Inflation
· Improving services sector growth
· Dominating Logistics hub
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