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Singapore is a bustling island nation located at the southern tip of Indochina. It boasts a per capita GDP of as much as $70,000 and is widely recognized as a hub of trade in Asia along with Hong Kong, both of which are well-established and highly competitive. Although Singapore operates under a multi-party system, the ruling party, People’s Action Party (PAP), has held political power for many years, and the government takes measures to maintain the status quo. As a result, the Economist Intelligence Unit ranks Singapore as a flawed democracy, coming in at 74th in the world, higher than Bangladesh but lower than Thailand.
However, Singapore is known for its political stability and its citizens generally have a high level of confidence in the government, even during crisis situations like the Asian financial crisis, the financial tsunami, the pneumonia epidemic, and the Sino-US trade war. This gives it a competitive advantage over Hong Kong. In terms of economic freedom, Singapore ranks first in the world and is considered a free economy along with countries like Australia, New Zealand, Switzerland, and Ireland.
Over the past 50 years, it has experienced tremendous growth, transforming from an “independent” island nation with a per capita GDP much lower than that of Hong Kong and Japan ($500) to one of the wealthiest countries in the world. This is due to factors such as increased international trade, a thriving financial sector, advancements in human development and education, and the growth of China and Southeast Asia.
According to the Ministry of Trade and Industry, Singapore’s economic growth for 2022 is expected to be between 3.6%, with a long-term average growth rate of 2-3%. The future development of Singapore will be greatly influenced by population changes, regional economic and trade developments, shifts in political dynamics, and advancements in technology.
Since 2000, the contribution of the manufacturing sector to Singapore’s GDP has seen a reduction from approximately 25% to 20% in 2022. This decline is attributed to the relatively expensive labour force that has caused some labour-intensive sectors to lose competitiveness against China and other rising Asian economies. The government, therefore, has shifted focus towards high-tech manufacturing, research and development, and service sectors, striving to establish Singapore as a critical hub for global trade, transportation, and finance.
Notably, this strategic reorientation has yielded some positive results. For instance, Singapore has successfully developed a significant manufacturing capacity in the pharmaceutical industry. Although the output from this sector fluctuates on a monthly or quarterly basis, it nonetheless makes a notable impact on the country’s overall GDP growth.
In a bid to further diversify the economy, the government has initiated policies to lower corporate taxes. The goal is to attract multinational corporations to establish their regional headquarters in Singapore, capitalizing on the nation’s reputation for excellent governance. The shift from income taxes to indirect taxes has also been designed to provide a more conducive environment for business start-ups.
The country has been swift to leverage its reputation for relatively low taxes, robust legal infrastructure, and superior transport connections. As a result, the Singaporean economy has increasingly become service-oriented. The service sector‘s share of GDP has expanded from about 60% in 2000 to 70.9% in 2022, accounting for over 70% of total employment. The leading segments within this sector include business, finance, and wholesale and retail trade. Meanwhile, the construction industry contributed to about 4% of the gross value added.
Since its inception in 1965, Singapore’s democratic system has been consistently governed by the People’s Action Party (PAP). The party was founded by Lee Kuan Yew, a prominent figure in Singapore’s history who held the office of Prime Minister for 31 years. Today, his son, Prime Minister Lee Hsien Loong, leads the PAP. The party’s continued leadership attests to its ability to steadily elevate the nation’s living standards. However, the PAP’s pervasive control over the political landscape does limit the public discussion of alternative policies or perspectives.
In 2013, the government proposed a plan to combat the country’s declining population growth rate by increasing the population from 5 million in 2012 to 6.9 million by 2030. This sparked concern among Singaporeans about potential wage reduction and inflation escalation, leading to mass protests.
In the 2020 general elections held on July 10, the PAP managed to retain its supermajority, securing two-thirds of the parliamentary seats. Despite the PAP’s dominant performance, the Workers’ Party, the main opposition, made significant strides by increasing its parliamentary representation to a record 10 seats, marking the highest opposition presence since Singapore’s independence.
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
The economy of Singapore is facing dynamic shifts as evidenced by recent trade data. Advanced GDP figures revealed a contraction of 0.7% quarter on quarter seasonally adjusted (q/q sa) in Q1 2023, following a marginal rise of 0.1% in the preceding quarter. The data, however, suggests an improvement in Q2. The trade landscape of Singapore shows signs of change with domestic exports rebounding, while net trade is projected to shrink in 2023 and 2024.
The domestic exports surge in March and April was primarily propelled by a recovery in exports to China and robust shipments of pharmaceuticals. In contrast, re-exports have been steady in the past few months. Concurrently, the tourism sector is showing signs of recovery, particularly due to arrivals from China, which accounted for 30% of their 2019 numbers in April, marking an increase from 9% in January. However, core inflation, though still high, seems to be losing momentum, a trend indicated by a mere 0.16% m/m sa rise in the index in March.
Notwithstanding these changes, the Singaporean economy seems to be bracing for a period of sluggish growth. Exports have declined considerably, and it is anticipated that they will continue to decrease as global demand softens. This weakening in the global demand is likely to further impact domestic demand, as falling export earnings contribute to weakened business investments and slow employment growth.
External factors have presented considerable obstacles for the Singaporean economy. An increase of over 20% in domestic export volumes from February to April poses a clear risk to existing forecasts. However, the recent surge is mainly attributable to erratic pharmaceutical exports, a trend which is unlikely to be sustained. Further, the boost from China’s reopening seems to be ebbing, as reflected in a dip in domestic exports to China in April. This lends weight to the view that the China reopening trade boost will be short-lived and relatively small, an outlook further reinforced by disappointing Chinese trade and activity data.
The uncertainty surrounding consumption presents another challenge. While retail sales showed a slight increase in March, they remained subdued compared to the end of last year. The recent budget includes an increase in transfers to low-income households, potentially offering some cushion to spending. However, a softening local labour market and the sharp rise in local interest rates in line with US Federal Reserve rate hikes, paint a gloomy picture. The effect of rising property prices on wealth is also predicted to wane due to significant recent hikes in stamp duty.
Finally, monetary policy in Singapore will have to adapt to these changing circumstances. The Monetary Authority of Singapore (MAS) maintained its policy in April, in light of high inflation. It is expected that core inflation will ease significantly by the end of 2023. External influences affecting business investment and the consequent weak demand are likely to lead to more cautious spending by firms. Nevertheless, strong growth in government investment and homebuilding, due to eased labor constraints, could provide some offset. As we move forward, it becomes clear that the Singapore economy will need to navigate a host of domestic and global pressures to maintain stability and foster growth.
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
Singapore is a densely populated country with a diverse cultural society and a population of approximately 5.64 million. The society is made up of three main ethnic groups: Chinese (74%), Malays (13%), and Indians (9%). It is also one of the world’s most religiously diverse societies, with ten different religions co-existing.
The problem of labor shortages in Singapore is becoming increasingly severe, as the nation faces the growing threats of an aging population and a declining birth rate. The current total fertility rate stands at 1.1 children per woman, which is one of the lowest in the world, only higher than South Korea in Asia. However, the population size is expected to continue growing for several decades before it stagnates.
This is because a significant part of population growth now and in the future comes from immigration. In recent years, as global market competition has intensified and markets have become saturated, many entrepreneurs have chosen to expand their businesses in Southeast Asia. As the most developed country in Southeast Asia, and with a highly conducive business environment, Singapore ranks second only to New Zealand among 190 economies, according to the World Bank’s business environment report. This has successfully made it an important financial and commercial center in Asia and the world, and the regional headquarters location for many global companies.
This is why in recent years (according to 2021 statistics), non-citizen population accounts for a third of the total population, with 1.57 million out of 5.64 million people being non-citizens. If permanent residents, students, and other work permit holders are taken into account, this ratio would increase to about 40%. Due to its economic status, excellent education system, and the aforementioned conducive business environment, the country’s labor force participation rate is as high as 69%, far higher than the OECD average of 60%, and second only to New Zealand (70%).
In the long run, the ethnic composition of the population will slightly change, with Malays and Indians having a higher birth rate, resulting in their gradually increasing proportion in the population. This might change the current situation where the Chinese constitute a larger proportion, potentially leading to risks of heightened racial tensions. However, high income levels and well-managed economy may reduce competition for resources among ethnic groups. The government handles racial and religious differences by promoting the concept of multi-racial and multi-religious citizenship, resulting in rare occurrences of incidents based on social, racial, or religious differences.
Residents are distributed across 55 planning areas. There are five planning areas each having more than 200,000 residents, namely Bedok, Tampines, Jurong West, Sengkang, and Woodlands. Bedok is the area with the most residents, totaling 278,270. The majority of the national population lives in planned towns (new towns), managed by the Housing Development Board (HDB). As of 2022, there are 24 planned towns nationwide. Usually, a plan accommodates between 100,000 to 250,000 residents, made up of several communities, each with approximately 20,000 to 30,000 residents.
Chinese 74.3%, Malay 13.5%, Indian 9%, other 3.2% (2020 est. by CIA)
English (official) 48.3%, Mandarin (official) 29.9%, other Chinese dialects (includes Hokkien, Cantonese, Teochew, Hakka) 8.7%, Malay (official) 9.2%, Tamil (official) 2.5%, other 1.4%
Buddhist 31.1%, Christian 18.9%, Muslim 15.6%, Taoist 8.8%, Hindu 5%, other 0.6%, none 20% (2020 est. by CIA)
Singapore has a rich history, starting as a British colony for 144 years before gaining independence in 1965. The legal system is based on the British common law system, and the government follows the Westminster System, with three branches: the legislative branch (the president and parliament), the executive branch (the cabinet, ruling party, and prime minister), and the judiciary. For many years, Singapore has been ruled by the People’s Action Party (PAP), which has brought about numerous successes and improvements in the standard of living for citizens. However, in recent years, the PAP’s influence has declined as the proportion of non-Han nationals (Indians and Malays) in the population increases, and there has been criticism of the PAP’s paternalistic management style and its limitations on the development of opposition parties. There have also been concerns about the neutrality of legislation due to the involvement of Government Linked Companies (GLCs) in various industries.
As we cast our gaze towards the upcoming years, Singapore’s political landscape and policy evolution are set to pivot around a number of significant areas. The anticipated transition of leadership that’s likely to take place within the next half-decade is one major focus. Alongside this, we can expect the new Prime Minister to roll out the Forward Singapore Exercise, an initiative that’s generating considerable interest.
Changes in policies governing labor, immigration, and public sentiment will also play a crucial role. The government is expected to fine-tune its stance in these areas to adapt to the changing dynamics both domestically and globally.
On the international stage, Singapore is closely watching the rivalry between China and the United States, as the outcome of this power play could significantly impact its own geopolitical standing and economic prospects. Additionally, internal tensions within the ASEAN community pose their own challenges that need careful navigation. Also, the implementation of key agreements, such as the IPEF, CPTPP, and RCEP, will be an important focus. These agreements promise to redefine economic and strategic ties and have profound implications for Singapore’s position in the global economic arena. In sum, the coming years promise a complex and dynamic phase for Singapore’s political and policy development.
On the policy making aspect, Singapore government will concentrate on enhancing the quality of life for its citizens. During the budget discourse in February, the authorities proclaimed a commitment to allocate more funds towards easing the cost-of-living burdens and strengthening the social safety net for low-to-middle income residents of Singapore. There will be a moderate shift towards resource redistribution, but we we not think that Singapore will deviate from its meritocratic approach to become a comprehensive welfare state. This change could mildly impact employers and wealthier individuals by increasing their tax obligations and compulsory contributions to the Central Provident Fund, a mandatory savings plan for pension payments.
Parliamentary discussions have also looked into strategies for stabilizing the property market and enhancing housing affordability. Among the measures announced were an increase in the buyers’ stamp duty and subsidies for reselling flats under the Housing Development Board, with an aim to reduce housing expenses and waiting periods. However, the projected swift rise in property prices and rentals in 2023 might stir up public dissatisfaction and escalate the cost of employing foreigners, which in turn could negatively affect businesses’ growth strategies in Singapore.
Public concern is growing over the possibility of a substantial foreign workforce occupying jobs that could otherwise be filled by Singaporeans. In response to this, the government has repeatedly increased the minimum monthly salary requirement for employment passes, which stood at S$3,600 (US$2,650) at the beginning of 2020 and rose to S$5,000 from September 2022. Nevertheless, the government has also launched a flexible work pass aimed at attracting premier talent, particularly in the technology sector, which requires a minimFum salary of S$30,000 or equivalent significant accomplishments. Additionally, an adaptable foreign talent policy allowing strategically important or growing businesses to employ more mid-skilled S-Pass holders has been introduced to alleviate labor shortages to some extent. However, these efforts don’t imply a substantial easing of the foreign labor regulations. The high costs and uncertainties associated with these changes may deter multinational companies from hiring foreign employees for certain high-skilled positions.
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