Gross Domestic Product
Singapore is known as a high income nation having a gross national income approximately equals USD 52,600 as recorded in 2017. The economy is ranked among the most competitive economies of the world due to a favorable regulatory environment supportive to expansion of businesses. The economy has made rapid development immediately after the independence. The nation quickly transformed from a low income developing nation to the high income developed one. In terms of GDP growth, the nation stands almost first in the world with an average growth 7.7 percent. The growth in the first 25 years of independence was even higher with growth being 9.2 percent (worldbank.org, 2018).
Manufacturing is the main driving force behind rapid growth of the nation. The two main pillars of the high value added economy are manufacturing and service sector. trade is another crucial part of the economic activity. Almost 30 percent of the total Asian trade is conducted in Singapore. Value creating jobs and industries is another major area of economic growth (asiabiz.sg, 2018). With a string financial support from the government, the economy successfully conducts several strategies supportive to economic growth. Through this essay relative strength of the economy is examined by evaluation performance related to overall output, labor market and price level.
Gross Domestic Product is an aggregate measure of national output. It estimates values of domestically produced goods and services in the monetary term (Mankiw, 2014).
The trend in economic growth rate of Singapore is demonstrated in figure 1. After growing at a fast pace for the three consecutive years of 2005, 2006 and 2007, economic growth rate fell drastically for the years 2008 and 2009. Sudden fall in the economic growth rate during this time was due to the occurrence of global financial crisis. The global financial crisis occurred in 2008. Impact of the crisis realized in Singapore in 2009 when the economy experienced a negative growth rate. The huge impact of crisis on economic growth of Singapore has been overcome by the improvement in economic condition and government policy of lowering interest rate. The economy accounted a recorded economic growth of 15.2 percent in 2010 (Hsueh, Hu & Tu, 2013). The high growth rate was mainly supported by a fast growth of manufacturing sector. The sector accounted a growth rate of 28.2 percent. After this phase, Singapore overtook all other Asian economies in terms of GDP.
The figure above provides a comparative analysis of per capita GDP between Singapore and Japan. Until 2009, per capita GDP in Japan exceeded that of per capita GDP in Singapore. However, the economy of Japan has experienced three severe recessions after 2008. This weakened the economy. In the late 2008, recession in Japan caused by the downfall in business investment along with a decline in export demand of the nation. The government of Japan though provided necessary stimulus which helped to recover economic growth in the late 2009 and 2010. However, as a result of massive earthquake hit the economy again contracted in 2011. This resulted in a lower per capita GDP. Singapore on the other hand recovered quickly after 2008. Growing export demand and investment in fields of medical technology and pharmaceutical production contributed to significant economic expansion (Vu, 2013). As a result of wide economic expansion, Singapore is now ahead of Japan in terms of per capita GDP.
Comparative Analysis of Per Capita GDP
The economic expansion of Singapore is attributed from design of sound macroeconomic policies that is helpful to attract long term investment. The combined effect of fiscal and monetary policy plays a supportive role in economic growth in Singapore. Government undertakes expansionary fiscal policy in times of economic recession. However, there is a difference in the framework of fiscal policy between Singapore and other contemporary nations (Maitra, 2016). Because of a relatively small size of government expenditure in relation to export, government support is mainly provided in form of transfer payment to firms and households.
Technological innovation is the key to achieve growth in productivity. In order to encourage innovation government has launched a new scheme called Product and Innovation bonus. With the objective of enhancing industry collaboration government has set up Trade Association and Chambers. The committee aims to identify problems faced by different sectors related to productivity within a period of four years (Hsueh, Hu & Tu, 2013). In Singapore, foreign investment plays an important role in boosting GDP. Realizing this, government design policies favorable to foreign investors.
Government formulated a committee named Economic Strategy Committee in revitalize the economy to the new growth path. The committee recommends seven strategies to promote a steady economic growth (Tan, 2016). The strategies include promotion of innovation and skills, development of corporate ecosystem, promoting Research & Development, represents Singapore as an energy efficient economy and others.
Unemployment resulted from a skill mismatch due to structural change in the economy is called structural unemployment. Singapore faces structural unemployment due to changes occur in the economy following globalization and shift in production technology.
Unemployment caused from business cycle volatility is termed as cyclical unemployment (Goodwin et al., 2015). Unemployment created due to global recession in 2008 is an example of cyclical unemployment.
The trend movement in the rate of unemployment is described in figure 3. The unemployment rate declined from 3.1 percent in 2005 to 2.1 percent in 2007. The world economy was severely hit by global financial crisis in 2008 following the sub-prime crisis in United State. Singapore economy was affected by the crisis. The resulted economic contraction increased unemployment in this year. The recorded unemployment rate increased to 3 percent. Singapore however quickly escaped from global recession with rapid expansion of export and investment (Brückner & Pappa, 2012). With growth of manufacturing and service sectors economic new employment opportunities have been created causing a significant reduction in recorded unemployment.
Government Measures to Achieve Economic Performance
Singapore has successfully maintained a significantly lower unemployment rate in the past few years. Government in Singapore has taken some effective policies to maintain almost full employment in the economy. Measures are taken mostly to counter structural and frictional unemployment. The main factor causing structural unemployment is the mismatch between available jobs and skills of the workers. The community Development Council (CDC) aims to assist the workers finding suitable jobs based on their skills. The council organizes proper job matching by providing more information regarding currently available jobs (Brückner & Pappa, 2012). Objective of the organization is to assist workers in finding suitable jobs as early as possible. The Workforce Development Agency of Singapore offers services related to job search and other information related to labor market. The agency maintains connection with strong networking of various companies. Assistance is also provided to unemployed workers through online job search program.
In order to upgrade skills of the workers, Workforce Development Agency run different skills program for Upgrading and Resilience (SPUR). The Employment & Employability Institution organizes necessary program to upgrade skills of the workers. This aims to ensure that workers in the economy remain constantly upgraded in a knowledge based economy (Hudson, Kühner & Yang, 2014). Government also makes 6 years of education as compulsory in order to prepare the pool of workers with minimum level of literacy.
Singapore labor market is characterized by the presence of significant number of foreign workers. Competition between domestic and foreign workforce might interrupt productivity of the nation. The ministry of labor market therefore encourages domestic and foreign labor force to act as the national labor force (Liow, 2012). Instead of competition, the joint movement of domestic and foreign counterpart of the labor market brings a better opportunity for the economy and reduces unemployment.
Government has launched Lean Enterprise Development Schemes (LEDS) to bring together different agencies offering one-stop services that will make easier for Small and Medium Enterprises to improve their business capacity and provide them greater access to the labor market. The Ministry of Manpower focuses on developing four key strategies to fight unemployment in the nation (businesstimes.com.sg, 2018). These strategies include securing creation of quality jobs, increasing adaptability of workers, promoting complementarity and inclusiveness and developing progressive and fair workplaces.
As demonstrated in the above figure rate of inflation in Singapore steadily increased from 0.4 percent to 6.5 percent between 2005 and 2008. A significant portion of increased inflation is constituted by the increased price of imported items as resulted from a depreciated currency. Fluctuation in price level is subject to the fluctuation in the exchange rate. Due to a global slow-down in 2008, inflation rate fell to 0.6 percent in 2009 (Seng, Lim & Leng, 2015). In 2011, price level was as high as 5.2 percent. As a result of anti-inflationary policy taken by the government price level has declined steadily.
Unemployment in Singapore
In general aggregate demand and aggregate supply are responsible for movement of price level in an economy. An expansion of aggregate demand or contraction in aggregate supply due to an increasing pressure on production cost causes inflation. The former is termed as demand-pull inflation and the latter is more likely to be called cost-push inflation (Mankiw, 2014).
Demand pull inflation in Singapore is caused following fiscal stimulus given in the form of increased government expenditure. In the overall production cost in Singapore, labor cost constitutes an important portion. An increase in wage cost causes cost-push inflation (Gerlach & Tillmann, 2012). Limited with natural resources, Singapore has to rely on import from other nations. A depreciation of Singapore dollar is one of the biggest threat to the price level in Singapore.
As obtained from the analysis of trend inflation rate, there is a gradual decline in recorded inflation rate overtime. The inflation rate has now remained within the targeted rate set by Monetary Authority of Singapore. Government of Singapore keep a close watch on movement of price level and tries to control increasing pressure on the price level both due to increase domestic and imported price (Dany-Knedlik & Garcia, 2018). It is the responsibility of the monetary authority to ensure a price stability level in the nation. Measures are taken to mitigate both imported and domestic inflation.
The main policy to reduce pressure on imported price is the appreciation of exchange rate. Exchange rate represents the value of currency of one nation relative to some other. Depreciation of currency implies a decline in value of domestic currency in comparison to foreign currency. Depreciation of Singapore dollar though is beneficial for export promotion as it makes exported items cheaper in the world market but it increases price of imported item. There are some items which Singapore necessarily imports. The Monetary Authority takes the policy of appreciating Singapore dollar in order to reduce price of necessary import like food, oil and others.
Different management models are adapted by National Environment Agency with the objective of maintaining an affordable price for the prepared food. An example of such initiative is appointment of a social cooperative named Foodfare to run the Bukit Panjang Hawker centre on a non-profit basis. Additionally, NEA has planned to operate 10 more hawker centres in Singapore in order to food at an affordable price to all the Citizen. A Committee named Retail Price Watch Group (RPWG), always keep a track on excessive increase in price of food or other necessary items used in our daily life (gov.sg, 2018). In case of non-prepare food, RPWG works together with wholesalers, supermarkets, hawkers and food courts across the nation to encourage accessibility of low-priced alternatives.
Government Measures to Achieve Full Employment
Domestic price often increases due to an increase in cost following a tight labor market condition. In order to prevent price rise resulted from tight labor market condition government makes joint movement with workers’ unions and companies regarding improvement in productivity. In this context, focus has been given on improvement in production techniques and updating skills set of workers (Dany-Knedlik & Garcia, 2018). The increase in productivity on a sufficient scale increase profitability of the companies. Under this circumstances, producers can bear the high wage cost from the increased profit and hence, no need to pass this on buyers in forms of high prices.
Conclusion
The analysis of economic performance indicates that despite being a small nation, the economy manages to maintain a steady performance under challenging circumstances. The hit of global financial crisis could have stagnant long term economic growth like other nations. However, Singapore successful overcome the recessionary shocks of 2008. This shows flexibility and strength of the economy in the phase of crisis. The economy though operates under free market regime; government plays a key role maintain stable economic performance. Singaporean government continuously alter policy strategy to promote productivity and establish international competitiveness. The steady economy performance in combination with government policies direct the economy towards the path of a sustainable economic growth and increase the living standard.
In terms of economic growth Singapore has left its competitors far behind the growth standard. Along with economic growth per capita GDP in Singapore is also is phase of gradual increase. The low level of unemployment is another factor contributing to economic prosperity. A stable price is also an important aspect of economic stability. By controlling both domestic and imported price Monetary Authority of Singapore has succeeded in its goal of price stability.
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