Economic Performance of Singapore: Analysis of Production Output, Labor Market, and Price Level

This paper analyzes the economic performance of Singapore in terms of production output, labor market, and price level. It examines the trend in real GDP, real GDP growth rate, and real GDP per capita. It also discusses the trend in unemployment rate and the different forms of unemployment in Singapore. The paper also looks at the trend in inflation rate and the typical causes of inflation. Finally, it discusses the measures taken by the government to achieve full employment and price stability.

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Introduction
Singapore is known as one of the highly developed economies that successfully
operates under a free market economy. Despite small geographical size and resource
constraint Singapore successfully upgrade itself to the stats of a developed nation. The
economy enjoys strategic advantages due to its access to major sea routes. Singapore
though affected by global financial crisis but recover at a faster rate as compared to
other nations in Southeast Asia (Ong, 2016). The effective response and suitable
policies support play a supportive role in the pace of growth and development.
The economy enjoys an open and corruption free environment along with fairly
stable prices and higher per capita income. Manufacturing and service are the two main
pillars of the economy. In manufacturing sector, chemicals and electronics are the two
dominant sub-sectors. The economy of Singapore is highly dependent on the external
sector (Blackburn, 2016). Export is considered as one important source of revenue of
Singapore. The paper aims to investigate economic performance of Singapore for a
period of ten years.
Analysis of production output performance
Real GDP
Gross Domestic Product is one aggregate measure reflecting marketed values of
goods and services that an economy produces in a given year. Goods are valued either
in current year market price or in base year prices. The former is called nominal GDP
while the latter is called real GDP (Baumol & Blinder, 2016). Real GDP is thus an
inflation corrected measure presenting aggregate output of a nation at base year prices.

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Figure 1: Real GDP trend in Singapore
(Source: tradingeconomics.com, 2018)
Figure 1 shows trend in real GDP of Singapore since 2008. There is an overall
upward rising trend in real GDP of Singapore. The continuous increase in real GDP of
Singapore has been contributed from increase in different indicators of GDP such as
increase in volume of export, investment and expansion of other economic sectors.
Real GDP is at a significantly lower level in 2008. This is due to the outbreak of global
financial crisis in 2008 (Wang, 2014). In response to the measure taken by government
and improved economic condition help the nation to recover the crisis. Since 2010, real
GDP again increased as a continuous manner.
Real GDP growth rate
Real GDP growth rate is a measure of economic growth. It is the rate at which
GDP of a nation changes from one year to another. Because of inflation correction real
GDP growth rate is considered as a better measure of economic growth over growth
rate of nominal GDP (Chiang, 2017).

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Figure 2: Real GDP growth rate trend in Singapore
(Source: tradingeconomics.com, 2018)
Trend in real GDP growth rate of Singapore is presented in figure 2. A drastic fall
in economic growth rate has been observed in 2008. Economic growth suddenly started
to decline from 2008 and in 2009, the economy recorded a negative growth rate. The
slow growth rate during this time is largely due to the global financial crisis of 2008.
Government lower the interest rate to help the economy escape from the crisis (Wang,
2014). Economic growth in 2010 picked up to 15.2 percent mainly due to rapid growth in
manufacture sector. Manufacturing grew at a rate of 28.2% during this time. The last
recorded growth rate in June, 2018 is 3.8%.
Real GDP per capita
Per capita real GDP is regarded as a proxy measure of productivity in a nation.
Real GDP of a nation is divided by population to compute per capita real GDP (Baumol
& Blinder, 2016).

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Figure 3: Real GDP per capita in Singapore
(Source: tradingeconomics.com, 2018)
Per capita real GDP in Singapore has grown in line with real GDP of Singapore.
Since 2010, per capita real GDP has increased indicating an improved standard of
living. In 2017, per capita GDP was recorded as 55235.51 USD. This is so far the
highest per capita GDP when compared with per capita GDP of past years.
Different government measures to enhance output performance
The economic growth of Singapore is supported by the sound macroeconomic
policies aiming to maintain a favorable environment to achieve a steady long term
investment for the economy. Government design fiscal policies to promote a long term
economic growth.
One significant factor accounting for a growth in GDP of Singapore is foreign
investment. Singapore government always encourages foreign investors to invest in the
nation. Singapore is content with high level of foreign reserve due to the healthy fiscal
position indicated by consistent budget surplus over time. Government has allowed
more than 7000 multinational corporations from various nation including United State,
Europe, Japan, China and India (Rodan, 2016). Foreign firms are allowed to operate in
almost all the sectors of Singapore economy.

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After the shock of global financial crisis, government has established a
committee named Economic Strategy Committee (ESC) in 2009 in order to design new
strategies to attain a sustainable and inclusive economic growth. The seven key growth
strategies put forward by the committee include promotion of skills and innovation,
present Singapore as Global-Asian hub, develop a vibrant and diversified corporate
ecosystem, strengthen commercialization of R&D, make Singapore as a smart energy
economy, increase productivity of land to ensure future growth of the economy and
develop a distinctive Global city (sgs.gov.sg, 2018).
Analysis of labor market
Trend in unemployment
Figure 4: Trend in unemployment rate in Singapore
(Source: tradingeconomics.com, 2018)
Figure 4 portraits unemployment scenario in Singapore. Unemployment in
Singapore has declined gradually indicating a significant growth of employment
opportunities. A sudden increase in the trend unemployment rate has been observed in
the year 2009 with rate of unemployment increased to 3 percent from 2 percent in the
previous year. Contraction of economic activities in 2008 following sub-prime mortgage
crisis was responsible for increase in incidence of unemployment. However, in the
recovery phase with expansion of manufacturing and service sector economic
unemployment again reduces. Unemployment has remained at an almost stable rate of

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1.9 percent since 2012. Estimated unemployment measured in terms of seasonally
adjusted rate slightly increases to 2.1 percent June 2018 as against a rate of 2.0
percent in May. The continuously declining unemployment rate after the global financial
crisis indicates a relatively strong labor market condition of the nation.
Various forms of unemployment in an economy
Unemployment describes a state of labor market where workers though
searching for works but are unable to find job at the existing wage. The three common
forms of unemployment that an economy experiences are Frictional unemployment,
Structural unemployment and Cyclical unemployment (Baumol & Blinder, 2016). When
labors leave their old jobs but have yet not found new job remain unemployed for the
time being. This type of unemployment is known as frictional unemployment.
In the process of economic growth, an economy often undergoes a change in its
structure resulting in a mismatch of skills of existing workers and the skills employers
actually need (Chiang, 2017). Resulted unemployment from a structural change in the
economy is termed as structural unemployment.
Unemployment created during the contractionary phase of business cycle is
known as cyclical unemployment (Baumol & Blinder, 2016).
Types of unemployment in Singapore
Singapore experiences all the three major types of unemployment (Cyclical,
structural and frictional). One major cause of unemployment in Singapore is
unemployment caused due to deficiency in demand or business cycle contraction.
Heavy reliance on external sector makes the economy extremely vulnerable to cyclical
unemployment.
With spread of globalization, Singapore experiences lot of changes in basic
structure of industries leading to structural unemployment (Tat & Toh,2014). The shift
from labor intensive economy to a capital intensive one causes structural
unemployment in Singapore.

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Frictional unemployment in Singapore is more dominant among student who are
newly entered the labor market after completing their studies and usually take some
time to find suitable jobs for them.
Measures of government towards full employment
Attainment of full employment is one of the main objective of government in
Singapore. Government takes demand and supply side policies to keep unemployment
rate at a very low level. In order to reduces cyclical unemployment caused in 2008 due
to global financial crisis demand side policy was undertaken in form of investment in
different Job Credit Schemes (Mok, 2015). Government also took initiatives to support
special risk sharing in the labor market.
The labor market of Singapore involves both domestic and foreign workers. The
Manpower Minister of Singapore believes that the economy can enjoy a better
opportunity to enhance its competitive along with an increase in investment if domestic
and foreign workers work together rather than competing with each other. Nationally,
foreigners fill 21% jobs within the Employment Pass with a salary ranging $3300 and
above (straitstimes.com, 2018).
In order to strengthen domestic workforce government has designed an
expanded Career Support Program. The program helps to assist Singaporeans below
the age of 40 searching for jobs as a professional, manager, executive and technician
(PMETs) after they have made redundant from the work force (Mok, 2015). The
program also supports those remain unemployed for a period of six months or above.
Wage subsidies to the employers, P-max program and career conversion
programs are other initiatives taken by the government to achieve the target of full
employment.

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Analysis of price level
Trend in inflation
Figure 5: Trend in inflation rate in Singapore
(Source: tradingeconomics.com, 2018)
The inflation rate in Singapore steadily declines since 2013. Singapore’s inflation
is mainly caused due to the increase in price of imported products following a
depreciation of Singapore dollar. Due to instability in the exchange rate of Singapore
dollar, inflation remain volatile. After declining to 0.6 percent in 2009, inflation again
started to increase from 2010. The reason for rising inflation in Singapore during this
time was slow-down in global economic activities and spill over factors (Lim & Sek,
2015). Last recorded inflation rate in the second quarter has found to be increased by a
smaller magnitude of 0.6 percent. The category of CPI which recorded an increase in
price level include food, cereals, fish, meat, milk, poultry product and oil. In contrast
vegetable prices has followed a downward trend. In response to measure taken by the
government to stabilize price, inflation rate has now remained within the set inflation
target of monetary authority.
Typical causes of inflation

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The phenomenon of sustained increase in the average price level is known as
inflation (Bernanke, Antonovics & Frank, 2015). Inflation is differentiated between two
major types- demand-pull inflation and cost-push inflation. Both causes an increase in
the average price level in an economy.
Demand-pull inflation is caused from an increase in aggregate demand beyond
the productive capacity the economy (Bernanke, Antonovics & Frank, 2015). There are
different factors that might cause a shock to aggregate demand and leads to an
increase in price level.
Figure 6: Demand-Pull Inflation
(Source: as created by Author)
Cost-push inflation on the other hand is the result of an increase in input costs. The
common factors that lead to a rise in production cost are increase in wages or rise in
prices of raw materials (Chiang, 2017).

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Figure 7: Cost-Push Inflation
(Source: as created by Author)
Causes of inflation in Singapore
In context of inflation in Singapore, both demand-pull and cost-push inflation
needs to discussed. Demand pull inflation in Singapore is caused from an increase in
the aggregate demand as resulted from fiscal stimulus of the government. A decline in
personal income or increase in government spending especially in Armed or Police
force are the main factors causing an increase in aggregate demand.
An increase in labor wage in Singapore leads to a significant increase in cost of
production and result in cost-push inflation (Lim & Sek, 2015). Import price inflation is
another factor causing cost-push inflation in Singapore.
Government measure to achieve price stability
The Monetary Authority of Singapore (MAS) is responsible to stabilize prices in
Singapore. With the objective of reducing imported inflation MAS takes the policy of
currency appreciation. This helps to reduce high price of imported items such as oil,
food and others. In order to maintain an affordable price of food, the National
Environment Agency has adapted a management model that is able to keep the cost
low. For example, a social food cooperative named NTUC food fare has been appointed

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to operate newly built Bukit Panjang Hawker centre on a non-profit basis (gov.sg, 2018).
The agency also plans to add ten more Hawker centres in the nation to offer food at an
affordable price.
To tackle the impact of tight labor market condition on domestic price level
government works with companies and unions to increase productivity. With increased
productivity firms are able to pay worker a higher salary. This will also help business to
cope with higher production cost without passing them on to consumers (Chow, 2017).
Government aims to provide support to the individual household to fight with
rising cost. For example, under the permanent GST voucher scheme, rebates are
offered in every quarter in order to help HDB household in offsetting their utility bills
(gov.sg, 2018). Such grants though do not reduce CPI inflation directly but are helpful to
keep the cost of living under control.
Conclusion
The paper provides an overview of economic performance of Singapore. Output
performances are analyzed by examining trend in real GDP, growth in real GDP and per
capita real GDP. The performance of the economy is quite satisfactory. All the output
indicators show an upward rising trend overtime. A downfall in the economic activity is
observed only in the year 2008 caused by global financial crisis. Not only in terms of
growth, the economy also constitutes a satisfactory performance in indicators like
unemployment and inflation. In the economy, the people are unemployed due to
structural, frictional and cyclical reasons. Overtime the unemployment has declined
which supports the economic growth. Price level in the economy fluctuated due to an
increase in domestic demand or due to an increase in cost. Price level in Singapore
fluctuates due to fluctuation in exchange rate. Price level in the last few years has been
stabilized due to anti-inflationary policies taken by Monetary Authority of Singapore.
Government plays a supportive role in the economy and designs appropriate policies to
improve economic performance in different aspects.

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