CURRENT PHASE OF ECONOMIC GROWTH IN SINGAPORE NITIN RAJ

Introduction

The international economy has experienced fundamental changes during last two or so decades. Economic activity is becoming not only more internationalised but also meaningfully, it is becoming globalised in a world of complexity, interconnectedness and mobility. Today we live in a rapidly changing and increasing competitive world of globalisation.

This report is brief analysis about the economic growth of Singapore (republic of Singapore) and stumble of it while recession. Singapore, an island in southern Asia is highly acclaimed global market friendly economy, major contribution of which is manufacturing of electronics. Being one of the busiest ports it is the fourth largest economy foreign exchange centre.

This report will play particular attention to:

1. Evaluation of current phase of economic growth in Singapore.
2. Factors contributing current phase of growth/contraction in economy.
3. Discussion on some methods of managing the economy by the Government.

Singapore has successful free market economy with strong market economy with strong service and manufacturing sectors. It has one of the highest per capita gross domestic product in the world. Singapore’s location on major sea lanes and its industrious population have made important hub for south-east Asia region. Singapore’s small population, external market dependency and suppliers have pushed it towards economic openness free trade and free markets. Effective government policies have been key reason in Singapore’s historically strong economic performance.

Singapore’s economic growth

To know about GDP, first we have to know that what this term actually is, GDP is gross domestic product, which means, The total value of goods and services produced within a country’s borders during a fixed period, usually one year, obtained by adding the value contributed by each sector of the economy .you can think of it as the size of the economy.

EVOLUTION OF ECONOMY OVER LAST TWENTY YEARS

Figure 1

(Source: International monetary fund- 2009 world economic outlook)

TABLE 1

Singaporean GDP is at a good state as of late. Its per capita GDP is among highest in world. There has been a steady rate of growth in last five financial years.

GDP in year2003 2.02 %

2004 1.10%

20058.10%

20066.40%

20077.90%

20087.50%

The Gross Domestic Product (GDP) in Singapore reduced at an annual rate of 2.80% in the last quarter of December 2009. Singapore Gross Domestic Product is worth 182 billion dollars or 0.29% of the world economy, as per the reports of World Bank.

Unemployment Rates

The unemployment rate in Singapore was 2.10 percent in December of 2009.

Singapore has enjoyed virtually full employment for long periods of time. In tandem with the global economic crisis and the economy’s contraction, unemployment as of end-June 2009 rose to 3.3% and resident unemployment reached 4.6%.

The inflation rate in Singapore was 0.20 percent in January of 2010

Business cycle

The five stages of the business cycle are growth, peak, recession, trough and recovery. In starting year of Singapore’s economy, its growing with faster rate and from year 2003 up to 5 years it reaches to peak, and after some years it starts declining and now it is in trough stage, now it should try some new methods to grow up, and recover its economic level.

Factors contributing current phase of economy are as follows

Contraction:

1. Recession: Singapore is the first Asian economy to enter in recession.
2. Recession is directly phasing to unemployment, it increased 3% in year 2009.
3. Singapore’s economy is heavily dependent on export activities and its going down up to 18%
4. International trade is also going down to 3.2%

Causes for economic development of Singapore:

1. A foremost reason is increasing demand of electronic products all over the world.
2. The construction sector is also helping the economy to grow and survive in the market. It expands its hands up to 16.4%
3. Government strategies and tactics are also playing crucial role in economic development for this south East Asian country.

We can conclude that in some sector economy gets into contraction and the main factor which helped in contraction is recession. Due to recession tourism industry effected, unemployment increased, and its export also got down. In some sector, still some growth is there, like demand for electronic products, pharmaceuticals, educational sector all helped Singapore to grow lot.

But in current phase Singapore is going in contraction, in almost every sector of economy.

Flow of income

The terms circular flow of income refer to an economic model which explains the reciprocal circulation of income in between producers and consumers.

The methods to manage the economy are:

First method is to reduce the unemployment rate as in December 2009 the unemployment rate is 2.10% and due to high worldwide recession it is continuously increasing. Due to unemployment, tourism sector is being effected, and also the service sector as people are jobless. Government is trying to match the perfect level of employment, as in 2010 world’s first youth Olympic is going to be held in Singapore, so tourism sector will b get effected by this, Singapore government is opening two large base royal casinos to attract tourism, this can also help in reducing unemployment.

Second method can be price cut, as 60% firms in Singapore are owned by government, so it can cut the prices, by cutting down its manufacturing cost, the cost has to be reduced in recovery stage, then it can use new techniques which can help in reducing wastage, government should reduce taxes also on some products like medicines, education, tourism sector, communication sector, all this will help to get recover from recession stage.

Public sector debt :

Debt is the total amount of money that a country (or company) owes. In January 2010, there was net borrowing of £4.3 billion, which compares with net borrowing of -£5.3 billion (net lending) in January 2009. The PBR forecast for 2009/10 is net borrowing of £178 billion.

Public sector net debt, expressed as a percentage of gross domestic product (GDP), was 59.9 per cent at the end of January 2010 compared with 50.0 per cent at end of January 2009. Net debt was £848.5 billion at the end of January compared with £708.0 billion a year earlier.

Public sector deficit:

Deficit is in simple words expenditure over revenue, a situation in which liabilities exceed assets, expenditures exceed income, imports exceed exports, or losses exceed profits. Singapore recorded a general government deficit of S$4054 Million in Jan/10 that is of 14% of GDP as compared to previous period S$4017 million .Due to worldwide recession Singapore also has to bear this public sector deficit.

Significance of these figures:

Government borrows loan and money for the sake of people only, it want to increase the production by cutting taxes , want to reduce unemployment and start new projects so that people can get jobs. By starting new projects government wants to increase the standard of living of people, and their purchasing power.

Conclusion

Singaporeone of the four tigers of Asia (others are Honkong, Taiwan and South Korea) has a highly developed and successful open-market economy. Few years back it had a GDP higher than that of most developed countries. Its economy recovered by 2006 from the global recession in 2001 but again the GDP of Singapore economy declined and it’s a prediction by various economist it will decrease at a rate of 2.8% in year 2010, but some predictions say just opposite of it as per promises done by the government it will increase at rate of 3 to 5 percent and according, as far as I studied about Singapore’s economy, it is now in a trough stage of business cycle, that is fourth stage, now it’s time for recovery, the last stage of business cycle, so it has to grow up now, by cutting prices or by reducing unemployment rate.

Tourism in Singapore has also a vital role. After a big loss it has started growing smoothly. World’s first youth Olympic game is going to be held in Singapore; hopefully it will promote the tourism sector. Employment will also groom this year. Two casinos are also going to start this year, which can help it in increasing tourism,. The global recession seems to coming at its end so the European countries and United States will soon regain their importing capabilities which will help Singapore to re establish its development back again.

Singapore had suffered a lot. Till last year they worked on saving jobs. Now as the market conditions have improved job qualities are taken into consideration.

Improvement in world business, rise of Singapore manufacturing, export, tourism, government commitment has shown good signs and it is believed that this small island will soon achieve its lost growth.