RaboResearch - Economic Research

Country Report Singapore

Country Report


Singapore’s growth has slowed down sharply in 2012. The recovery is expected to gather some steam but we cannot expect growth to be very high in a weak external environment. The outlook is clouded by significant downside risks from the external sector. The key risks are a sharp and protracted downturn in large advanced economies and extreme financial stress. Fortunately, the country’s healthy public finances, strong net-creditor position, solid economic fundamentals, and stable political environment all give us comfort that the recovery will not be derailed completely. In specific, the monetary and fiscal authorities still have ample room to buoy growth should external environment deteriorate considerably.

National facts of Singapore
National facts of SingaporeSource: EIU, CIA World Factbook, UN, Heritage Foundation, Transparency International, Reporters Without Borders, World Bank.


The economy

Singapore’s massive exposure to external shocks (trade in goods and services more than three times GDP) meant a recession in 2009 was unavoidable. Yet, the subsequent recovery has been extremely swift. However, Singapore is now facing a less supportive external environment (figure 1). In 2012, GDP rose by 1.3%, which is a far cry from the growth figures observed in the previous two years (GDP grew by 14.8% in 2010 and 4.9% in 2011). Going forward, we expect the economy to grow at a modest pace amid the weak external demand. The recovery is likely to be supported by domestic–oriented activities such as tourism and financial services.

The main near-term risks to Singapore’s outlook are a protracted slowdown in advanced economies and a sharp increase in global financial stress. Given the country’s openness, these shocks would hit the economy hard; through weaker exports and a fall in financial market activity. The good news is that the authorities have sufficient policy space to deploy a decisive response in case the economy weakens significantly. In specific, the government’s strong fiscal fundamentals do allow it to introduce a sizeable stimulus package to mitigate the impact from adverse external shocks. Singapore’s budgetary framework prevents any government from accumulating a deficit during a term in office which usually lasts five years. Over the past twelve years, Singapore has run budget deficits on only three occasions: 1.7% of GDP in FY2001 [1], 1.1% in FY2003 and 0.3% in FY2009. On average, since 2000, the budget surplus has been 6.3% of GDP. For FY2013, the government projects a budget surplus equivalent to 0.7% of GDP. On the face of it, gross government debt-to-GDP ratio – standing at 107% in 2012 – is very high. But this does not take the government’s massive asset position into consideration. The net public debt-to-GDP ratio (i.e. accounting for financial assets) was -93.7% last year. There is also scope for monetary policy to become more accommodative if the situation warrants it. The Monetary Authority of Singapore (MAS) maintained the policy of a modest and gradual appreciation of the SGD NEER [2] to tame inflationary pressures. But downward trending (core) inflation rate will give them further room to loosen the policy stance if growth slows down more than currently anticipated (figure 2).

Figure 1: GDP and world trade
Figure 1: GDP and world tradeSource: Reuters EcoWin, CPB
Figure 2: Money market
Figure 2: Money marketSource: Monetary Authority of Singapore

 Singapore’s exceptionally strong external position guards it against a balance of payments crisis. The country has been running sizeable current account surpluses even during the Great Recession (21.5% of GDP, on average, between 2007 and 2012). As a result, Singapore’s total external assets (951% of GDP) greatly exceeded its total external liabilities (692% of GDP) in 2011. Of course, more recent data show that total foreign debt – arguably the riskiest part of external liabilities [3] – amounted to 430% of GDP in 12Q3, of which three-quarters belongs to the banking sector and the rest is a liability of the non-financial private sector. The government of Singapore is not indebted to foreigners, which is a unique case in the industrialised world.  


[1] ^ Refers to fiscal year 2001/02. Fiscal years end on March 31.

[2] ^ Note that Singapore runs its monetary policy based on a band for the SGD NEER. It adjusts and affects monetary policy by moving the band up (policy tightening) or down (policy loosening).

[3] ^ Foreign investors can choose to not rollover maturing debt if they suddenly lose confidence in the country.

The housing market

Following a steep decline in 2008−09, house prices rebounded strongly and are now above the previous peak. Between end-2008 and end-2012, residential and commercial properties increased by 30% and 14.5%, respectively. Demand for housing by locals and foreigners has been buoyed by negative real interest rates and Singapore’s status as a regional safe haven. The authorities have responded by undertaking several measures to contain demand. For example, the government released new regulations [4] to curb speculation on residential and industrial property transactions. These measures are welcome as it reduces the threats of property bubbles and subsequent rise in non-performing loans. However, more steps may be necessary if the housing market shows no signs of cooling. At third-quarter 2012, the big 3 domestic banks (about one third of the sector by assets) had 36%-42% of their loan portfolio exposed to the property sector.


[4] ^ These include higher minimum cash down payments, additional buyer’s stamp duty, and lower loan-to-value limits.

Selection of economic indicators
Selection of economic indicatorsSource: EIU



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