Country briefing note <download pdf file>
Economic growth is weak owing to the global downturn
- The economy decelerated markedly as a result of the waning global economy. Real output growth dipped to 1.3% in 2012 from 5.2% in 2011. On a sequential quarter-on-quarter basis, growth performance receded steadily over the year, with contractions recorded in the second half of 2012.
- Exports of goods and services account for more than 200% of Singapore's GDP so the economy is more vulnerable to external demand shocks than its neighbours. As a result, weakness in the export-oriented sectors fed quickly into the rest of the economy.
- Private consumption growth virtually paused in the third quarter of 2012. This was also partly underpinned by a sluggish real wage growth due to high inflation.
- Output growth is projected to pick up to 3.0% in 2013, partly on a low base. Although the global information technology industry is not anticipated to rebound forcefully, Singapore is set to gain from generally revived global trade in 2013. Domestic-oriented activities, such as the construction sector, are likely to be major growth drivers, supported by negative real interest rates.
Inflation is above-trend
- Inflation has been above-trend, at 5.2% in 2011 and 4.6% in 2012, compared with 3% or lower in the past decade (except for in 2008). High inflation is partly because of price pressures fuelled by low global interest rates that drove up domestic property prices.
- The Government's efforts to enhance productivity through tightening the inflow of foreign labour could elevate labour costs, at least temporarily, and thus core inflation.
Fiscal support targets vulnerable citizens and SMEs
- Fiscal surplus was maintained at 1.2% of GDP in 2011 and 1.1% in 2012.
- Schemes to support households are focused on financial assistance to elderly and disabled citizens, expanding health-care services and helping low-income families, with such means as pre-school subsidies and a larger endowment fund.
- Small and medium-sized enterprises benefited from a cash grant and training programme as well as financial incentives for firms to enhance productivity and innovation efforts.
Monetary policy aims to cool down inflation
- The exchange rate-based monetary policy tightened, with the pace of appreciation increasing to restrain imported inflation.
- At the same time, macroprudential measures were augmented to cool down an increase in property prices, which amounted to more than 50% between 2009 and 2012.
Current account surplus narrows; currency strengthens
- A contraction in the momentum in respect of the export of goods became more visible in mid-2012. Merchandise imports also decelerated but less quickly, thus trimming the current account balance from 21.9% of GDP in 2011 to 18.6% in 2012.
- In line with dull export performance and orders, foreign direct investment inflows appeared to slow.
- Net portfolio flows remained volatile, reflecting global swings in sentiment, but they did not substantially deviate from the past trend.
- Similar to several other peers in the subregion, the currency strengthened through the second half of 2012 on the back of strong capital inflows.