Singapore’s Boisterous Economy and Its Transition to a Productivity-led Growth System

Singapore’s Economy

Singapore overtook Tokyo and became the world’s third-biggest trading center for foreign exchange, owning a budding derivatives market with an over the counter volume of about $400bn daily, as at October 2015. The financial sector consists of 13% of the nation’s gross domestic product – GDP, which is considerably more than the 8% share it contributes to Britain’s GDP. Singapore has maintained a rear AAA credit rating, and the IMF (International Monetary Funds) described its banks as “well capitalized,” with proper arrangements for bad loans regardless of the worries about their exposure to oil-and-gas firms.

Singapore owes most of its economic successes to its position at the center of intra-Asian trade. In over five decades of independence, Singapore has struggled greatly to pull investments from across the globe. The country’s success with its open, low tax model has made its system a model for other nations to follow. Consider Great Britain for instance, there are far-reaching rumors that the country will gradually become a   “European Singapore” immediately their exit from the EU is comprehensive.

Regional Financial

Thanks to its political strength and steady legal and regulatory systems, Singapore appears to be a natural haven. The Lion still has huge prospects as a regional financial center. The nation is attracting India’s offshore money with the idea of it being a hub for the developing markets in masala bonds (rupee-denominated debts issued outside India).

The Effects of Foreign Investment and Global Trade on Singapore’s Economy

In recent years, global trade growth has dropped. Despite the signs of a rise in the nation’s GDP during the last quarter of 2016, the effects on the world’s second-busiest port. The city most exposed to the global value chains created by foreign investors and multinationals have been rather significant. Singapore’s daily stock market turnover in 2016 was around $797m (19%), which is lower than its 2013 rates.

Capital economics researcher

According to a capital economics researcher, Ms. Krystal Tan, slow growth in Singapore’s key exporting markets may weigh on expectations for a healthy and sustainable export recovery.

However, there was positive economic news in the city last month. With GDP growth for the year to December 2016 was at 2.0 percent supporting by stronger export growth. Compared to the expectations early last year, things are much better.

Other factors like changing sea routes, international competition, new business models, and technologies also create new problems as much as prospects for Singapore. The country needs to be actively receptive to these changes to adequately function. These challenges are not exclusive to Singapore. GDP growth has been significantly low in the post-crisis period. Cutting across the small economic groups with slow export growth as a contributing factor.

Assessment

A thorough assessment of the more salient inhibitions on Singapore’s transition to a productivity growth model would be those connect to the structure of Singapore’s economy. The existing growth model has been a complete success such that the move to a productivity-led growth model has become more challenging.

A fresh perspective on the issue would show a part of the economy becoming so successful that it abates the competitive placement of other sectors. Solely because the thriving sector puts an upward economy-wide strain on exchange rates, costs and wages. As it applies in most foreign direct investment intensive economies, including Singapore the multinationals are highly productive and as such have correspondingly higher wage and cost structures. This often draws resources from other parts of the economy and increases the cost structure for other Singaporean companies relative to their level of productivity.

The weight of this is crushing many companies in Singapore that focused on the international sectors that do not have high levels of productivity like the large multinationals. Increasing entrepreneurial and innovative activities into international markets becomes difficult due to the high-cost structure faced by these companies. This is one of the difficulties Singapore is facing in the process of growing new global champions.

A Possible Solution in Stronger Policies and a Transition to a Productivity-led Growth

The various initiatives are a great response to a lot of the emerging difficulties and chances facing Singapore. Case and point Singapore the logic behind allowing foreign takeovers of the country’s three finance companies as a part of a larger industrial change that is design to encourage lending to be small and medium scale enterprises. It increased all the financial firms’ stocks by at least 9 percent. However, several structural constraints are holding up the progress of the country. They must be addressed for Singapore to deliver the targeted economic transformation.

Multinational companies would remain an integral part of the economy of Singapore. This is because they make a large contribution to national income, exports, and job creation. However, Singapore needs a balanced and a much stronger focus on internal strengths in embrace a sustainable productivity growth.

Recent Policies

Recent policies have focused on this area, but the level of difficulty means that equal levels of innovation. Aggression must be applying to developing a position of competitive strength in the economy. It is the same aggression and strength that placed Singapore in a strategic position to attract economic activities over the past few years.

According to David Skilling, it is not an easy duty to move to a new growth model. It is especially hard when the model you are operating for the past few decades has been highly successful. Creating a new productivity engines in the Lion economy will take a considerable amount of time and resource. But without such a pivot, the economic transformation may remain elusive.

The policies developed for the economy should focus on these structural, economy-wide questions as much as on the specifics of various policy initiatives. These policies have been applied in other small advanced economies with dominant, and strong sectors like New Zealand and Ireland as well as those that have developed unsustainable cost structures after periods of economic success. The aggressive structural reform agendas have often been implemented to address cost structures, invest in new areas of strength, and increase competitive intensity.


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