Recent Economic
Developments in
Singapore
Outline for this
Presentation
Structure of the Singapore Economy
Business Cycles in Singapore
Dynamics of the 2001 Recession
Characteristics of the Initial Upturn
Support Provided by Policy
Structure of the Singapore
Economy
Importance of Trade to
Singapore
Trade to GDP Ratio
3.4
Ratio
3.2
3.0
2.8
2.6
2.4
1985 1987 1989 1991 1993 1995 1997 1999 2001
Structure of the Economy
By Sector
Business
Services (14%)
Financial
Services (12%)
Transport &
Comm. (11%)
Commerce
(18%)
Others (17%)
Manufacturing
(22%)
Construction
(6%)
Key Services Sectors = 67%
Manufacturing Output
Petroleum
Products (4%)
Machinery &
Equipment (6%)
Transport
Equipment (9%)
Electronics
(38%)
Fabricated Metal
Products (5%)
Others
(21%)
Chemicals
(17%)
Pharmaceutical industry’s linkages
with rest of the economy limited…
Exports
(99%)
Imports
Pharmaceutical
Industry
Domestic
(1%)
 Accounts for only 8% of total manufacturing output
 Employment generation limited:
0.6% of total manufacturing employment
…unlike the electronics
industry
Exports
(72%)
Imports
Supporting
Industries
Electronics
Industry
Domestic
(28%)
 Accounts for 42% of total manufacturing output
 Generates higher employment:
Electronics- 30% of total manufacturing employment
Supporting- 37% of total manufacturing employment
Structure of the Economy:
Exports by Product
Electronics
(61%)
Oil
(18%)
Non-oil
(82%)
Chemicals
(13%)
Others
(16%)
Misc Manufactured
Articles (10%)
Structure of the Economy:
Exports by Country
ASEAN-3
18%
NIE-3
15%
Others
15%
Japan
10%
North
America
23%
EU
18%
Summary I
Ultra Open Economy
Manufacturing & Services as Twin Pillars
Dominance of Electronics in Manufacturing /
Exports
Chemicals Rising But Less Linkages &
Multiplier’s Effects
Business Cycles in Singapore
GDP Growth from 1980
15
YOY % Growth
80
Singapore’s
Real GDP
(LHS)
60
10
40
5
20
0
0
-5
Composite
Foreign
GDP (LHS)
-10
-15
1980
Global
Chip Sales
(RHS)
-20
-40
-60
1984
1988
1992
1996
2000
YOY % Growth
20
Dynamics of the 2001
Recession
World Demand-Domestic Supply Curve
DS1
Price Level
(Domestic
currency)
WD1
WD2
Q2
Q1
Real GDP
The Singapore economy
contracted by -2.0% in 2001
20
YOY % Growth
15
10
5
Overall
0
-5
-10
-15
ServicesProducing
Industries
GoodsProducing
Industries
-20
1997
1998
1999
2000
2001
2002
Exports & industrial output fell
sharply
Domestic Exports
Fall in
External
Demand
Drop in NODX
YOY % Growth
40
NODX
20
0
Electronics
-20
-40
97
Cutback in
Production
98
99
00
01
02Q1
Industrial Production
YOY % Growth
40
Overall
20
0
Electronics
-20
-40
97
98
99
00
01
02Q1
Services exports were also
affected
Re-Exports
Fall in
External
Demand
YOY % Growth
60
Drop in NODX
ASEAN-3
40
Total
20
0
-20
NIE-3
-40
97
Cutback in
Production
99
00
01
02 Q1
Services Exports
75
YOY % Growth
Spillover to
Services Sectors
98
Overall
50
Transport
25
Travel
0
-25
-50
97
98
99
00
01
02 Q1
Adjustments in the
Labour Market
W/P
L
L
D
L
1
D
C
S
A
B
N
Flexible wage response
W
Average Nominal Earnings, SA
- CPF
- non CPF
106
85Q1=100
Index
104
102
97Q4=100
100
98
00Q4=100
96
94
1
2
3
No. of quarters
4
5
Comparisons Across
Downturns
Summary of Key Indicators : Peak-to-Trough Adjustments
Real GDP
-10
-7.7 (3Q)
-8 -3.1 (3Q)
-5.3 (3Q)
-28.4 (4Q)
-7.7 (4Q)
-12.9 (2Q)
Exports
-40
-6
-4
-20
0
CPI
0
2
GDP Downturn in
2001
1998
1985
-1
-2
-3
-0.9 (3Q)
-1.6 (4Q)
-2.0 (4Q)
2.1 (4Q) 3
2.7 (5Q)
3.6 (7Q)
4
Unemployment Rate
Summary II
More volatile environment – 3 shocks in 5 years
Cause shifts in AD curve
Dynamics of Recession :
Exports  Output  Services  Labour Market
 Prices
2001: Deepest Recession
2001 : Wages adjusted quickly
Characteristics of the Initial
Upturn
US economy
30
SAAR % Growth
20
Personal
Consumption
10
0
Non-Residential
Fixed
Investment
-10
GDP
-20
1996
1997
1998
1999
2000
2001
2002Q1
Turnaround in domestic
economic activity
20
GDP (SAAR)
15
Per Cent
10
5
0
GDP (YOY)
-5
-10
-15
1997
1998
1999
2000
2001
2002
Manufacturing driving the
uptick in growth
Surge in
manufacturing SAAR
in Q4 2001 continued
into Q1 2002…
SAAR % Growth
40
Manufacturing Value-Added
20
0
-20
-40
2000
SAAR % Growth
2001
Q3
2002
Non-oil, Nonelectronics
60
…along with
positive NODX
growth in the last
two quarters...
Q3
40
20
NODX
0
-20
Electronics
-40
-60
2000
Q3
2001
Q3
2002
Hub-related services doing
well.
• Singapore
provides hub
services
50
Real Non-oil
Re-exports
40
SAAR % Growth
• Re-exports
supported by
regional
trade
30
20
10
0
-10
-20
-30
Air
Transhipment
Cargo
2000
Q3
2001
Q3
2002
Divergent Paths?
• Chemicals
surge more
recently
• Chemicals
has less
spillovers
Per Cent
• Electronicsled initially
120
100
80
60
40
20
0
-20
-40
-60
Electronics
(SAAR)
2000
Q3
Non-electronics
(SAAR)
2001
Q3
Total
(SAAR)
2002 AprMay
Support Provided by Policy
World Demand-Domestic Supply Curve
DS1
Price Level
(Domestic
currency)
WD1
WD3
WD2
Q2
Q3
Q1
S$175
US$1.75/S$
S$170
US$1.70/S$
Real GDP
Macroeconomic Policy Mix
Easier
Monetary
Conditions
Expansionary
Fiscal Policy
off-budget packages
multiplier effect
1.3% point
boost to economy
Outlook for Growth
Manufacturing sector
expected to turn in
steady growth
Moderate rebound
for the
services sector
Financial services
sector
to remain weak
Construction sector
expected to contract
further
GDP Growth
to come in at the
upper half
of the
2-4% forecast range
Summary III
Led by initial turnaround in the US
Led by electronics & trade-related services
Conducive Macro-Policy Mix
Risks to Growth
Equity Markets
Real Economy
Consumption
(Wealth
Effect)
Investment
(Profit Cycle)
IT Spending Slump
- Postponement of replacement demand
Conventions used in data
presentation
V.A. (real terms)
Xt
YOY %
X t - X t-12
* 100
X t-12
QOQ %
X t - X t-1
* 100
X t-1
SA
QOQ SAAR
((
X t ^4
)
- 1) * 100
SA
X t-1
A
% deviation from
baseline
B
Xt-X
B
Xt
t
* 100
B
Baseline Values : X t
A
Alternative Values : X t