Output performance of Singapore
Singapore despite constrained by its geographic size and limited resource availability has attained a sustained path of economic growth. Operation under free market economy and openness to global economy help the economy to become one of the fastest growing nation in Asia. Global financial crisis though hit the economy in 2008 but it soon recovered due to internal strength of the economy and effective policy design (Chiu, 2018).
The economy is characterized as one of the most open and corrupt free nation. The low tax rate of 14.2 percent makes the nation a favorable destination for business investment. Government in Singapore support high value added economic activities in its manufacturing and service sectors. Some major sectors of the economy include Banking, Biotechnology, Energy and Infrastructure and Real Estate (Barkat et al., 2016). Export is one main source of revenue in Singapore. The competitive position of Singapore in production of electronics, chemicals and different services is largely supportive to export expansion.
In order to measure output performance of the economy real GDP, growth in real GDP and per capita real GDP are used. Real GDP is an inflation corrected measure of aggregate output where goods and services are valued at base year prices. Growth in real GDP is the change in real GDP presented as a percentage of previous year GDP. Per capital real GDP is a measure of per capita income and obtains by dividing GDP with total population (Baumol & Blinder, 2016).
Real GDP
Figure 1: Real GDP in Singapore
(data.worldbank.org, 2018)
Real GDP in Singapore has increased significantly in the past ten years. Factors causing an increase in real GDP include expansion of export, investment and rapid growth of manufacturing and service sector in Singapore. This is only in the year 2008 when real GDP decreased because of global financial crisis. Management, recession had not sustained for a long period and GDP again started to increase since 2010.
Figure 2: Trend in real GDP growth in Singapore
(data.worldbank.org, 2018)
Economic growth in Singapore experienced some fluctuation due to fluctuation in internal and external economic activities. The economic growth rate is lowest in 2009. The recorded growth rate was -0.6 percent in this year (Benetrix, Lane & Shambaugh, 2015). The highest growth rate is recorded in 2010 with growth rate being 15.2 percent. A significant portion of economic growth is accounted by the manufacturing sector. The economic grew at a moderate rate of 3.6 percent in 2014.
Real GDP, Real GDP growth rate and Real GDP per capita
Figure 3: Per Capita real GDP in Singapore
(data.worldbank.org, 2018)
Per capita real GDP in Singapore follows the trend movement of real GDP. GDP per capita in real terms has increased indicating reflecting improvement in average living standard.
The Ministry of Trade and Industry designs strategy of economic growth and development in Singapore. The Singapore government focuses on attaining a productivity driven growth. For this government has formulated a Productivity and Innovation board to support productivity growth, improvement in capacity and promote development of technology and innovation to the small and medium sized enterprise (Rodan, 2016).
The Economic Strategies Committee of Singapore is formulated to design strategy in favor of a sustainable and inclusive economic growth. One primary goal of this committee is to promote innovation and skills within the economy (Tremewan, 2016). Additionally, policies related to efficient energy usage, improvement of land productivity and such others are undertaken to make Singapore a Global Asian hub.
Figure 4: Rate of unemployment in Singapore
(data.worldbank.org, 2018)
As reflected from above figure, unemployment in Singapore has recorded a gradual decline. After declining steadily from 3.1 percent to 2.2 percent between 2005 and 2008 unemployment rate rose to 3 percent in 2009 (Benetrix, Lane & Shambaugh, 2015). The increased unemployment rate during this time was resulted from contraction of the economy due to the hit of financial crisis. Soon the manufacturing and service sector expansion increase scope for employment causing a decline in unemployment in recent years.
An economy is said to suffer from the problem of unemployment when people in the working age though are willing to get a full time job but are unable to find one. There are several types of unemployment where people remain unemployed for short term or long term period.
Unemployment created by structural change in the economy is termed as structural unemployment. In case of cyclical unemployment, people lose jobs or unable to find jobs due to recessionary phase of business cycle (Baumol & Blinder, 2016). Unemployment among new entered members of labor force or those moving between jobs is known as frictional unemployment.
Singapore suffers from structural, cyclical and frictional unemployment. Singapore has to undertake some change in production and economic structure causing structural unemployment. Shift in production technology from labor intensive to capital intensive is one example of structural change in the economy. Cyclical unemployment in Singapore is mostly caused due to fluctuation in external demand (Tan, 2016). Like every economy fresh graduates and newly entered members faces short term frictional unemployment.
Performance trend in Singapore
In order to address problem of unemployment resulted from typical cyclical, frictional and structural factors, government aims to design policies favorable for unemployment. After the hot of global financial crisis, the economy experienced a worsening condition of labor market as indicated from a growing number of unemployed people (Wong, 2016). To counter cyclical unemployment government invested in various job credit schemes.
The Careers support program in Singapore is designed assists labor force belonging to an age below 40 in searching suitable jobs as professional, technician, managers and executive. The designed program also addresses the issue of long terms unemployment in Singapore. Under this program, employer also receive a subsidy constituting 20 percent of workers’ salary in the first six months (Hampf, Wiederhold & Woessmann, 2017). The amount of subsidy reduced to 10 percent for the next six months in year.
Figure 5: Inflation trend in Singapore
(data.worldbank.org, 2018)
In 2005, price level in inflation grew merely at a rate of 0.4%. With speeding up of domestic economic activity, demand increased leading to an increase in inflation rate to 6.5 percent in 2008. Increase in price level mainly attributed from a higher imported price due to currency depreciation. The volatility of price level is subject to the fluctuation of exchange rate (Benetrix, Lane & Shambaugh, 2015). Price level recovered and grew at a rate of 5.2 percent in 2011. Thereafter, following policies of price stability inflation rate has followed the path of gradual decline with rate of inflation being 1.01% during 2014.
Inflation captures a gradual increase in the level of average price. The two typical cause of inflation in an economy is increase in demand and increase in cost. Aggregate demand in an economy might be increased due to an increase in consumption or investment or government expenditure or net export. Increase in aggregate demand push up price and is known as demand –pull inflation.
An increase in factor prices (mainly wage) boosts cost of producing goods and services. In order to maintain profit margin producers then pass the higher cost by charging a high price. When price level rises in response to a higher cost, it is known as cost-push inflation (Miller & Benjamin, 2017).
Singapore experiences demand-pull inflation due to increase in government spending mainly in police or armed forces. Reduction in personal income tax also increases aggregate demand by increasing consumption. The higher cost of wage leads to cost-push inflation in Singapore. Imported inflation where inflation caused because of an increase in price of imported good is a special form of inflation in context of Singapore economy (Dany-Knedlik & Garcia, 2018).
Government measures to achieve output performance
The policies to achieve a stable price level is designed by Monetary Authority of Singapore. A rise in import price due to depreciation of dollar is one significant factor causing inflation in Singapore. To stabilize price, the monetary authority adapts policies to control exchange. In the budget held in 2013, a policy of currency appreciation was taken to fight against imported inflation. In January 2018, government has introduced disinflationary policy in the form of disbursing rebates on additional services and other conservancy charges to reduce headline inflation (Chow, 2017).
Government takes supply side policies to counter cost-push inflation. For example, government provides necessary support to companies and unions to enhance productivity. The idea is that increased productivity helps to increase profit of employers who then able to offer a higher wage (gov.sg, 2018). If profitability increases more than wage cost, then producers no longer need to pass the higher cost to the consumers.
Conclusion
The evaluation of output, labor market and price level indicates a strong economic performance of Singapore. Aggregate output of the economy has been expanded in response to growth of manufacturing and service sector. Output has declined due to global financial crisis occurred in 2008. The recession however was short lived. Singapore successfully escaped from recession due to economic restructuring and several growth strategies undertaken by government. Form of unemployment prevalent in Singapore include structural, cyclical and frictional unemployment. The steady decline in unemployment has resulted from creation of new jobs in manufacturing and service sectors. The direct and indirect assistance of government in form of government run programs help the nation to maintain a low level of unemployment. Price level after experiencing some degree of fluctuation due to exchange rate volatility finally stabilized in response to anti-inflationary policy designed by Monetary Authority of Singapore.
Reference list
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Chiu, S. W. K. (2018). City states in the global economy: Industrial restructuring in Hong Kong and Singapore. Routledge.
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