Monetary Authority of Singapore Annual Report 2012/2013
Anchor of Economy


Singapore Experienced a Slowdown amid External Vulnerabilities

Being a small and very open economy, Singapore was not immune to the global headwinds. The domestic economy grew by a modest 1.3% for the whole of 2012, down from 5.2% in the previous year. Having started the year strongly, activity weakened in Q2 and Q3 2012, alongside a pullback in global demand as tensions in the Euro zone mounted. However, prompt remedial action from the G3 central banks provided some reprieve to global financial markets, and Asia ex-Japan economies staged a broad-based rebound thereafter. Accordingly, the Singapore economy returned to growth in Q4 last year. (Chart 1)

The lacklustre GDP outturn last year was largely on account of a downshift in manufacturing activity. In particular, Singapore’s electronics cluster recorded a double-digit contraction for the second consecutive year, amid sluggish external demand and a global supply over-hang. The weakness in manufacturing, in turn, pulled down trade-related services. Growth in financial services likewise decelerated, as tepid investor interest led to a pullback in sentiment-sensitive activities. Nonetheless, domestic demand provided some support to the economy. The construction sector, for instance, turned in another year of robust growth, buoyed by a steady rollout of commercial and residential projects. Other domestic-facing sectors, such as real estate and professional services, also expanded at a firm pace.

Going into 2013, the Singapore economy has maintained a modest upward momentum in Q1. The externally-reliant industries registered a setback due to a weaker performance in the pharmaceuticals and transport engineering segments, although domestic demand provided some support.

Looking ahead, GDP growth should pick up over the course of this year amid an improving external environment. The domestic-oriented sectors are expected to remain the mainstay of growth, underpinned by ongoing supply-side expansions in transportation infrastructure and other major building works. Nonetheless, the recovery momentum is expected to be gradual and uneven, capped by the challenges in the advanced economies as well as resource constraints associated with domestic restructuring. The Singapore economy is therefore projected to expand by 1–3% this year. Over the medium term, growth is likely to reset to a more modest range compared to the 2000s. Resource constraints will be increasingly brought to bear as the population ages and foreign worker inflows ease. The current restructuring drive to orient the economy towards higher value-added activities and productivity-led growth is therefore critical.