Chuang Peck Ming, Business Times 21 Jan 08;
Is the Singapore economy relying less on external trade and more on the domestic market for growth?
IT WAS not supposed to have happened the way it did. The world economy did well in 2007, which means trade-dependent economies like Singapore would have done well too. It did, scoring 7.5 per cent growth.
But it wasn't so much higher exports that contributed to this; it was something else. If it were just exports, the outcome for the economy would have been disappointing. Singapore's non-oil domestic exports (NODX) last year rose just 2.3 per cent, its worst showing in five years.
This key barometer not only fell short of the official projection of 4-6 per cent - and 2006's 8.5 per cent growth - it lagged behind the larger economy. This is a big departure from past growth pattern.
The NODX used to grow faster or expand more or less in tandem with Singapore's economy. Bigger economies have a large home market to depend on for growth. But with a small domestic market, Singapore must turn to the world for a living. It has always relied on exports to drive the economy. Is this no longer the case?
It seems not. Despite land reclamation, Singapore is still a little red dot on the map. Its population and their spending power have multiplied. But a population touching four million - and straining Singapore's infrastructure to almost bursting point - is still far from enough to even keep Singapore's export-oriented economy running at its current pace. Which is why the government is working hard to increase its number to six million.
The folks at International Enterprise Singapore, the government's trade promotion arm, are sticking to the old belief that the economy and trade share the same fate. They are tipping the NODX to expand more in line with the overall economy in 2008 - by 4-6 per cent, against a 4.5-6.5 per cent growth forecast for the economy.
How do they expect the NODX to do better in a year when the US economy is in danger of going into a recession - if it hasn't already - and dragging the larger part of the global economy down with it, when exports failed to make the mark last year when external conditions were in a far better shape?
IE Singapore says the NODX performed below par last year because of poor electronics shipments, which were hit by a sharp drop in chip prices and 'consolidation' of the disk drive business. Non-electronic exports, led by volatile pharmaceutical shipments, failed to provide the fallback to help pick up the slack.
IE Singapore sees chip prices bottoming out and is counting on a recovery in electronics shipments, stronger exports in chemical products and still-robust Asian economic growth for a pick-up in the NODX in 2008.
The answer is simple - even if it reflects more hope than realism. It would be easier to register a leap in the NODX number this year as any improvement will be made on a smaller base than would have been the case if exports had put up a stronger showing in 2007.
But the answer also leads back to the key question posed here - where did last year's economic growth come from and are exports no longer Singapore's main engine of growth?
Prime Minister Lee Hsien Loong, in unveiling last year's economic growth figure in his New Year Message, singled out the construction and financial services for doing especially well. Reports also point to thriving business in the retail and hospitality industries.
These are economic activities that belong to the domestic sector. In other words, it seems that 2007's economic growth was driven mainly by the home market.
Local spending power has risen and while the numbers might still not be enough to provide a really big lift for the economy, they are joined by a massive inflow of foreign money.
In the past year, Singapore has attracted many of the well-heeled from emerging economies to put their money here with fund managers and in luxury properties. Tourists also came in record numbers - crossing the 10 million mark - filling up hotels here and keeping local shopping malls and restaurants busy.
A globalised economy means the world is fast becoming one big market. It means we do not just have to go out to sell our goods and services. We can also draw customers here to buy them.
But our economic planners are still right in one thing - whether we export to make a living or attract foreigners to come here to spend and invest their money, Singapore's fortune is still very much tied to the health of the global economy.
