Singapore is a high-income economy, known for its excellent finances and a high degree of openness. Being one of the most competitive economies worldwide, Singapore is well known for providing one of the most business-friendly environments globally.
Unfortunately, the Covid-19 pandemic has severely impacted the country, which relies heavily on international trade. In 2020, Singapore posted a gross domestic product (GDP) growth of -6%. However, the International Monetary Fund (IMF) expects a strong recovery in 2021 with a 5% growth forecast and projects the economy to stabilise in 2022 with a 2.6% GDP growth.
Singapore Economy Overview
Since achieving independence in 1965, Singapore transformed itself from a small domestic market economy with high unemployment and poverty levels to a highly developed, free-market economy, through decades of industrialisation.
The city-state is highly urbanised, with a population of 5.7 million. English is one of Singapore’s official languages and is the most spoken language, particularly in business.
At present, GDP growth is driven mainly by exports and domestic demand. Singapore’s GDP went down from $372 billion in 2019 to $337 billion in 2020. However, is expected to bounce back to $362 billion and $379 billion in 2021 and 2022, respectively.
The country’s GDP per capita is among the highest in the region and globally. However, it went down from $65,000 in 2019 to $58,000 in 2020 but is forecast to recover to $62,000 and $64,000 in the current year and the next.
Latest estimates from Singapore’s Ministry of Trade and Industry show that during the first quarter this year, Singapore’s GDP rose 0.2% YoY, a turnaround from a 2.4% contraction registered in the fourth quarter of 2020. On a quarterly basis, the economy expanded by 2.0%, from the 3.8% expansion in the last quarter.
Unemployment still exists but at a very low rate attributed to changes in the economy’s structure such as outsourcing low-skilled jobs. In 2019, Singapore’s unemployment rate was at 2.3%, which surged during the pandemic to 3.0%. Analysts forecast unemployment to fall to 2.6% and 2.3% in the next two years but expect recovery to be uneven.
Currency and central bank
The Singapore dollar or SGD is the country’s official currency and is divided into 100 cents. It is often represented with the dollar sign ($) or S$ to distinguish itself from other dollar currencies. Banknotes and coins are issued by its central bank, the Monetary Authority of Singapore (MAS).
In terms of value, the Singapore dollar ranks 13th as the most traded currency worldwide as of 2020 and is considered one of the strongest values in the Asia-Pacific region. Aside from serving as the central bank, the MAS, currently headed by its chairman Tharman Shanmugaratnam, also functions as the country’s financial regulatory authority.
Inflation in Sinagpore was at 0.6% in 2019, and entered the negative territory in 2020 at -0.4%. The IMF projects inflation rates of 0.3% in 2021 and 1.1% in 2022.
Industry and Trade
According to the World Trade Organisation (WTO), Singapore ranks 16th in terms of imports and 15th in exports globally, as of 2020. World Bank data shows that Singapore’s foreign trade amounted to 319.1% of its GDP in 2019.
The main exports of the country are electronic integrated circuits and micro assemblies, electrical machinery and equipment and mineral fuels. Meanwhile, Singapore’s main imports are integrated circuits, refined petroleum, electrical machinery/equipment, turbojets and turbo-propellers.
The main sectors of Singapore’s economy are industry, services, and agriculture. However, agriculture’s contribution to GDP is almost non-existent, and it provides only 0.7% of jobs to the workforce.
As a highly industrialized economy, the country’s industrial sector comprises 24.5% of the GDP and provides work for 15.2% of the working population in 2020. Among the country’s leading industries are electronics, petrochemicals, biomedical sciences, logistics, and transport engineering.
Meanwhile, its service sector has the most significant GDP contribution at 70.4% and employs 84.1% of Singapore’s workforce. Trade, business services, transportation, communications, and financial services are the country’s biggest service categories.
During the first quarter of 2021, Singapore’s manufacturing sector expanded by 7.5% yearly. A pickup in public and private sector construction activities resulted in an improvement of contraction in the construction sector to 20.2% from 27.4% in the last quarter. Meanwhile, services-producing industries contracted by 1.2% this quarter, compared to a 4.7% fall in the last quarter.
Survey and Rankings
For the World Bank’s 2020 Ease of Doing Business Index, Singapore economy remains at the second spot, ahead of Hong Kong and just behind New Zealand. It improved its overall score from 85.8 to 86.2.
But Singapore overtook New Zealand to rank first globally in the Heritage Foundation’s 2021 Index of Economic Freedom. Singapore improved its overall score by 0.3 from 89.4 to 89.7 and is categorised “Free” along with New Zealand, Australia, Switzerland, and Ireland.
While the World Economic Forum’s 2020 Global Competitiveness Report did not provide overall rankings due to missing data from different international organisations, Singapore ranked sixth in its digital skills list and third in its digital legal framework list.
Stock Exchanges and Capital Markets
The Singapore Exchange or SGX remains the sole stock exchange in the country. It is a multi-asset exchange that operates equity, fixed income and derivatives markets, and provides listing, trading, clearing, settlement, depository, and data services.
The SGX uses the FTSE Straits Times Index or STI as its benchmark index. The STI is a capitalisation-weighted stock market index that tracks the performance of the top 30 companies listed on the SGX.
Around 40% of the companies listed on the SGX are based outside the country, and it promotes itself as an offshore market for equity index derivatives, covering major Asian economies with the highest liquidity worldwide.
Singapore’s bond market continues to attract both local and foreign investors. Recognised as one of the most developed markets in Asia, the country is one of the few nations with a AAA credit rating from major rating agencies.
With the current pandemic, risk-averse investors could look to Singapore government bonds for more attractive yields. Compared to 10-year US Treasuries that offer 0.6% yield, 10-year Singapore government bonds offer 0.9% yield.
In the fourth quarter of 2020, the country’s local currency bond market was at $380.4 billion, growing by 3.9% quarter-on-quarter and 11.6% year-on-year. In addition, outstanding government and corporate bonds also went up by 5.3% and 1.3% quarter-on-quarter, respectively.
Real Estate Market
Despite the effects of the Covid-19 pandemic, Singapore’s real estate market remained resilient. In 2020, the private residential property index went up by 2.21% year-on-year, following rise of 2.67% in 2019 and 7.85% in 2018. Additionally, house prices increased by 2.16% compared to the previous year.
On the other hand, rents went down by 2.4% in the Core Central Region and 3% in the Outside Central Region yearly. Home purchases by foreigners also fell to a 17-year low in 2020 at only 742 units.