The necessary protection measures to conquer the COVID-19 pandemic are severely impacting economic activity around the world. As a result of the pandemic, the International Monetary Fund (IMF) projects the global economy to contract sharply by –3 percent in 2020. This would be much worse than during the 2008–09 financial crisis.

For Singapore, a sovereign city state and successful democracy, the IMF expects the economy to shrink by 3.5 percent this year.

Singapore Economy Overview

However, Singapore’s economy is highly developed, a free market, and ranked as one of the most open and most pro-business in the world. This stability and attractive financial climate sees Singapore benefit from an inward flow of investment from both institutions and individual investors. The city state has a population of 5.6 million.

Singapore Population

Singapore is among the top ten countries in the world for GDP per capita, at a level of $103.181, with total GDP for the country at $468 billion, in 2019. Over the past few decades Singapore’s annual percentage GDP growth has fluctuated, falling as low as a contraction of -2.2% in 1998, and climbing as high as 14.5% in 2010.

In 2019, Singapore’s economy grew by 0.7%, falling from a rate of 3.1% in 2018. Due to the COVID-19 pandemic, the IMF expects the economy to shrink by 3.5 percent this year.

It’s also predicted that a faster slowdown in China will affect other Asian economies, despite Asia still being the world’s fastest growing region.

Singapore economy: GDP constant prices

Singapore has a number of state-owned enterprises which hold majority stakes in its largest companies, such as Singapore Airlines, SingTel, and MediaCorp. The Asian country is a global financial hub and has strong export performance in the electronics, chemicals and services industries. It also has a high trade to GDP ratio and the Port of Singapore is the second busiest in the world by the amount of cargo that flows through it.

Unemployment in Singapore has crept higher in recent years, reaching 2.3% at the end of 2019, however the rate has remained below this figure for almost a decade.

Singapore economy: Unemployment

Due to Singapore’s size and location, both land and water are precious commodities in the country.

Currency and Central Bank

Singapore’s currency is the Singapore dollar (SGD) and the Monetary Authority of Singapore (MAS) is its central bank and financial regulator. The bank was founded in 1971 and in 1977 it was given the control of the regulation of the insurance industry by the country’s government.

In 1984 securities regulation under the Securities Industry Act (1973) was also brought under the remit of MAS making it Singapore’s full financial regulator. This is relatively unusual compared to other central banks around the globe.

Another unusual characteristic of the central bank and Singapore’s monetary policy is that MAS does not regulate the country’s monetary system using interest rates. MAS uses a foreign exchange monetary mechanism, intervening in the SGD market.

In Singapore, inflation rates over the past two decades have been relatively low compared to other countries in the region. Overall inflation rose to 0.6% in 2019 compared to 0.4% in 2018 in line with most of Asia and rising food and oil prices. For 2020, IMF expects an inflation rate of -0.17 due to COVID-19 outbreak.

Industry and Trade

The Singapore economy is known for its outflow of foreign direct investment (FDI) to other nations, but it also benefits from incoming FDI from both investors and institutions. The city-state is attractive to businesses and entrepreneurs.

The largest industry is manufacturing contributing up to a quarter of annual GDP. Within manufacturing, electronics, biomedical sciences, chemicals, logistics and transport industries perform well.

Manufacturing output grew in 2017 and 2018 but has since fallen back to similar levels experienced between 2012 and 2016 after the downturn of 2010 and 2011. Year-on-year manufacturing output fell by 0.7% in December 2019 but on a seasonally adjusted month-on-month basis grew by 4.1% that month.

Following manufacturing, is the financial services industry which benefits from political stability and a business-nurturing economy. The country has 200 banks and is a regional hub for many global financial services firms. Business and other services are also significant contributors to Singapore’s annual GDP levels, as are the country’s retail and transportation sectors.

With a land mass smaller than that of New York, Singapore’s economy does not benefit from any significant natural resources or agricultural output. However, it is a regional hub for oil and gas as well as global leader in sustainable water solutions. The latter occurring due to Singapore’s water shortage.

Survey and Rankings

Out of 141 economies, the World Economic Forum (WEF) Global Competitiveness Index ranks Singapore 1st with a score of 84.8. It outranks the US at 83.7 points and Hong Kong with 83.1 points. The index measures national competitiveness, defined as the set of institutions, policies and factors that determine a country’s level of productivity. Singapore scored high for its public sector, labour force, diversity and infrastructure.

The World Bank’s Ease of Doing Business ranking’s place Singapore in 2nd place out of 190 countries. Just ahead of Hong Kong in 3rd place but behind New Zealand in 1st place. The Doing Business report, as per the World Bank, isn’t designed to be an investment guide, as investors should consider many other factors. It is, however, used by governments to influence “sound” regulatory policies.

Again, Singapore performs significantly well in The Heritage Foundation’s 2019 Index of Economic Freedom. It is ranked 2nd, just above New Zealand this time in 3rd place and below Hong Kong which takes 1st place. The Heritage Foundation says citizens of “free” or “mostly free” countries enjoy incomes more than double the global average and that the link between economic freedom and economic growth is “robust.” Singapore is one of only six nations considered “free,” with, in contrast, 88 nations considered at least “moderately free.”

Stock Exchanges and Capital Markets

As of January 2019, this country’s only exchange, The Singapore Exchange (SGX) held 640 main listings with 215 catalist, or fast-growing company, listings. Its ten largest listed companies account for around half the total value on the exchange, by market capitalisation and include Jardine Matheson Holdings Ltd, DBS Group Holdings Ltd, Jardine Strategic Holdings, Singapore Telecommunications, Oversea-Chinese Banking Corporation, United Overseas Bank, Hong Kong Land Holdings, Wilmar International, Thai Beverage PCL, and Dairy Farm International.

Of these, DBS Group Holdings’ DBSM is one of the largest banks in Asia, once the Development Bank of Singapore and is still headquartered there with 280 branches in 18 markets. Wilmar International is one of Asia largest agribusiness groups and boasts Unilever as one of its largest customers. In addition, Dairy Farm International operates some of the largest retailers in Singapore including Cold Storage supermarkets and 7-Eleven stores.

The FTSE Straits Times Index (STI) tracks the top 30 companies on the SGX weighted by capitalisation. The SGX has a number of indices tracking advanced and emerging technologies including the Global Robotics & AI Index, the Asia Healthcare Select EW Index, the Digital Innovators Index and the E-commerce Index.

Singapore economy attractive for investors

Singapore is described as having deep and liquid capital markets, attractive to investors. Its bond markets, equity capital, foreign exchange and over the counter (OTC) markets are strong. The equity capital market is one of the most established in the Asia Pacific region and its highly international. 40% of SGX listings are foreign companies.

The country is host to the largest foreign exchange centre in the region and it’s third in the world after London and New York. It is also an offshore Renminbi (RMB) centre supporting China’s efforts to internationalise the yuan.

It is noted that Singapore’s capital markets are closely knit with its other financial sectors. Financial institutions make up a high proportion of Singapore’s non-SGD debt issuances and fund managers and insurance companies make up around a third of Singapore’s long-term debt issues. Financial institutions and private banks invest heavily into SGD debt and fund managers and financial institutions are major investors in non-SGD debt issues.

Bond Market

The bond market is one of the most developed in Asia with around two-thirds in SGD and the remainder in US dollars. It is made up of Singapore Government Securities (SGS), quasi-government bonds, corporate bonds and structured securities and is accessible to issuers and investors globally. There are no capital controls, hedging restrictions or withholding of taxes. In 2009 regulations were changed to allow high-quality securities issued by foreign entities to be regulated liquid assets and this has led to an increase in international issuances.

Real Estate Market

With land a premium in Singapore property prices are not cheap and condos in the city, for example, are around $14,000 to $18,000 USD per square metre. Conversely rental yields can be low, at around 3.0%. Income tax on rentals is also high, non-residents can expect around 22%, with property tax at 10% but with a 10% surcharge for foreign nationals.

Foreign nationals have been allowed to purchase apartments without government approval since the Residential Property Act was passed in 2005 but they cannot buy vacant land and landed properties without permission from the Singapore Land Authority. These restrictions are not in place for non-residential properties.