Future Challenges for Singapore Economy

Question: Discuss about the Future Challenges for Singapore Economy. Answer: Introduction: The nature of a country depends on the economic attributes that it possesses and maintains. Through this report an analysis of the economic attributes of the developed country Singapore has been discussed. The country is locally known as Singapura which means Lion City (Crane, 2016). The basic features like the amount of production in the economy, the number of labor, the growth in the GDP and also the price hike within the economy determines the economic performance of any country. Singapore is a country in the South-East Asian region which lies in between Equator and Peninsular Malaysia. It covers an area of 718 square km. It is a country where the best of both eastern and western cultures are reflected. The locals of this country are mainly Malays, Indian, European and Chinese. Singapore is shoppers paradise for its tourists and a leading business hub of the world (Crane, 2016). The country is mainly export oriented and has a large volume of skilled workforce. Trade and commerce existed in this country since British era. Though the country is highly developed but still it manages to maintain its ethnicity and tradition. Through this report the economic attributes of Singapore has been highlighted based on analysis of 3 different aspects namely, production performance, labor market issues and the trend in price level of the economy. Production performance has been seen by using the GDP growth rate and the trend in trade balance of the economy. Labor market issues has been depicted by using the unemployment rate and the price level has been analyzed by using the inflation rate of the economy for past 10 years. Analysis of Product-Output Performance: The performance of the economy on the basis of production can be analyzed by looking at the trend in the countrys GDP growth rate. In this report, Singapores GDP growth rate has been taken over the past 15 years that is from 2000 till 2015 ("GDP growth Data", 2016). The diagram below highlights the economic fluctuation faced by Singapore. The graph indicates that Singapore has also faced several sharp down turn in its economy despite the fact that its a developed nation. It has also been the victim of the global recession of 2007-08. The country faced a negative growth in its GDP in the year 2009 as an effect of the mortgage crisis of U.S. The following year saw a steep rise in its growth rate and reached the peak within the time frame chosen for analysis. The growth rate soared up to double digit of 15.24% in 2010 but the very next year again the growth rate decreased significantly ("GDP growth Data", 2016). The countrys trade performance has been seen to get a better view of the performance of production and output. Singapore started its foreign trade with the establishment of British East India Company in the early 1980s. During British colonialisation the country has served as the venue of raw material trading. Its main trading partners are USA, Japan and ASEAN. The governments strong co-ordination has helped it flourish in the trade and commerce. From the above graph it is seen that there has been fluctuations but its not as grave as the fluctuation in GDP. After the 2007 the trade balance declined to 0 million SGD. After that it again regained its position and now at present its more than 6000 million SGD (Balance of Trade, 2016). The country mainly exports its chemicals, electronic goods and services. Recently, the country has seen some downfall in the manufacturing sector and the government has been engaged in finding out the root of the problem. The government has already kept the tax rate low in the economy to induce and enhance trading activity. The government has followed the policy of removing the trade barriers and opening up the economy in the global market. Also the country has now focused on improving their products by promoting innovation and improving the research and development sector. The government also tries to attract the foreign bunch of talent by implementing an employment pass to them. To improve the productive capacity of the economy the Ministry of Manpower keeps a track on the immigrants of the country and encourages further immigration of productive labor. Analysis of Labor Market: Labor plays the most vital role in an economys production system. Any economy can grow smoothly if it has a good amount of skilled, productive labor force. The main concern of a nation lies in controlling the labor market and resolving the chaos in the same. In this report the problem of unemployment in Singapore has been focused followed by the ways in which the government of the country tries to solve the labor market issues (Manpower, 2016). The above graph as constructed from the annual data provided by Singapores Ministry of Manpower shows an interesting trend in Singapores unemployment rate. The rate increased to more than 2.5% in 2006 and then once again increased to more than 3% in between the period 2008-2010 (Manpower, 2016). The rise in unemployment during this period can be explained as the effect of recession that took place globally during 2007-08. Singapores average rate of unemployment over these 10 year span remained around 2%. This minor amount of inflation is considered as NAIRU and is good for any economy. Recently, it has been seen that Singapore is facing some issues in the labor market. Data suggests that the older people who once lost their jobs during recession still bear the burden of recession. At the same time its seen that younger ones are getting jobs as reflected by the decrease in job search in Singapore ( TodayOnline, 2016). According to Straits times of 2014, the wage rate of the then existing labor market grew sluggishly despite the fact that there has been high demand for workers. The sluggish wage rate continued to exist as there has been low productivity of the labors for some time which gave the authority no incentive to increase their employers wage (MIN, 2015). According to Ministry of Manpower, Singapore can expect a shrinkage of its labor market in various sectors namely, manufacturing, engineering and transport. Singapore had bountiful expansion in its economy such that per capita GDP during 2013 exceeded the PCGDP of capital giants like USA and UK. The growth o f the economy has been mainly contributed by the foreign residents but suddenly the government decided to reduce and tighten the number of foreign labor hiring of the country. (Manpower, 2016). The companies based on Singapore hired around 95,000 local employers in 2014. During 2015, Finance Minister along with the Deputy PM chose to implement the policy which will enhance the productivity of the economy instead of the tightening policy taken earlier. According to the report published in ASEAN daily, there has been a decrease in demand of labor in job market of Singapore. The shipping industry of Singapore has also been facing great problems in the past few years. As reported by the port authorities, Singapore faced a continuous decline in the volume of containers passed through the ports (Yeo, 2016). This decline occurred as a result of technological up-gradation. Large vessels can now break the hard big chunks of ice in the Arctic region and pass directly without using the ports o f Singapore and thereby reduces time of travelling by 2-3 weeks. Hence, Singapore had no way but to face the consequences of losing the competitive advantage. Analysis of the Price Level in Singapore: Unemployment and inflation are the anathemas of the economy. It has already been seen in the labor market analysis that Singapore had been able to control the rate of unemployment over the last 10 years. According to economic theory there is an inverse relationship between these two components of the economy. Hence, Singapore is expected to face a high rate of inflation as it has successfully controlled the unemployment level within the range of NAIRU. Economist describes inflation as the continuous fall in the conventional price level of the economy. The graph below shows the trend in inflation during 2006-2016. Inflation rate in Singapore soared up during mortgage crisis of U.S. Soon after 2008 there has been consequent reduction of inflation rate. Again after 2010 onwards the inflation rate increased and on an average it remained approximately around 4%. Its a surprising fact that the country has been able to maintain stability between the two anathemas of economy. The inflation rate is calculated by ascend in the Consumer Price index of the country. The CPI of Singapore consists of approximately 6500 products. According to the Ministry of Communication Information, the main reason for Singapores inflation is the constraint it faces in the supply side. Three aspects that can be cited as the reason behind Singapores inflation are: Increase in the cost of transport Policy of tightening the labor market Supply constraints. The country increased the existing premiums of the Certificate of Entitlement. Following the normal laws of supply and demand, an up-rise in the premium reduced the supply and as an effect the transport cost increased. This had a direct impact on the overall price level of the economy. Since the government adopted the policy of tightening the labor market and restricting the hiring of cheap foreign labor hence more of local people got hired. This has been both a boon and bane for the economy. Its a boon in the sense that it reduced the unemployment rate whereas its a bane for the economy as it increased peoples purchasing capacity and in turn rise in the overall prices (Teo, 2013). Also there has been an increase in the rental cost of Owner-Occupied accommodation. This led to increase in the domestic housing prices. The restriction in supply has also been a curse for the economy. The government has taken few important measures to keep this price level under control. The Monetary Authority set their currency on float and allowed it to appreciate. This has helped the economy to mitigate the higher import cost of things like crude oil and foods. The country also adopted several business models to manage the cost of foods. National Environment Agency already established a hawker centre to provide food at affordable cost. It also planned to establish around 10 more hawker centre. The RPW Group also tries to keep check on the prices of the daily commodities and keep alternatives available for the people of Singapore. The government also tries to come up with solutions by keeping constant communication with the unions of different companies. Conclusion: All through this report, the economic attributes has been described with respect to the country Singapore. In this analysis some interesting facts cropped up like the economy has been able to curb its inflation rate while maintaining the unemployment rate within the natural level. It also has maintained a fair amount of GDP. The changes that the country can expect in near future are: Rapid urbanization, technological breakthrough, social and demographic change, resource scarcity, climate change and a shift in the economic power worldwide (Lee, 2015). Singapore has been able to sustain extraordinary growth in its economy for more than three decades. In recent times the neighboring countries of Singapore is creating a competitive situation for it. The government of Singapore has taken quick precautionary actions and established 5 subcommittees in the already existing Committee on Future Economy. These subcommittees have the role of analyzing the upcoming threats and challenges that the economy may expect to face. They were suppose to complete their report by the end of this year, 2016 and henceforth the government will take necessary actions as required based on the reports (Solutions, 2016). A country with a negligible corruption and strong administrative system is expected to perform well in the years to come. References: Balance of Trade, S. (2016). Singapore Balance of Trade | 1964-2016 | Data | Chart | Calendar Forecast. Tradingeconomics.com. 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