By: DailyForex.com
While one financial crisis after another seems to be plaguing world markets, one Asian nation seems to be handling it all with a minimum of stress. Singapore, an island city-state off southern Malaysia with a population of fewer than 6 million in an area of 718.3 km, is the wealthiest economy in Southeast Asia. It continues to grow albeit slowly, boosted recently by an influx of visitors taking advantage of local hospitality and good consumer prices.
According to a report released Wednesday by the Department of Statistics, the economy of Singapore grew by 1.9 percent in the September quarter, compared with a 2.5 percent contraction in the preceding three months. The Ministry of Trade and Industry, however, is predicting growth to slow to 2 percent for all of 2015 with a possible economic expansion of only 1 and 3 percent in 2016.
In Wednesday’s statement, the MTI said, "Global economic conditions have remained sluggish, with full-year growth for 2015 likely to come in weaker than in 2014." Compared to regional currencies, the Singapore dollar (SGD) has stayed strong. With a US interest rate hike set to be carried out towards the end of the year, there are more fund outflows from developing countries like Malaysia and Indonesia and these funds flow back towards developed countries which have resulted in the appreciation of the SGD compared to the rest.
…although Singapore's growth seems to be slowing, it remains more resilient compared to most.
In fact, this has caused the SGD to appreciate to historic highs and although Singapore's growth seems to be slowing, it remains more resilient compared to most and continues to fuel the SGD strength.
Missed a Recession
The city-state seems to have avoided a technical recession and the decline from a growth rate of 2.9 percent in 2014 is seen as a reflection of the slow export demands in Asia from major world economies including the United States, China and Europe.
The report stated that the one area that is weighing down the numbers is the weak performance of the manufacturing sector, which covers larger sectors such as semiconductors, pharmaceuticals and oil rigs while industries dependent on domestic factors including finance, insurance and wholesale trade are continuing to support growth.
An influx of tourists has buttressed faster growth in the transportation, storage, accommodations and food sectors, where output expanded by 5.9 percent and 12 percent respectively. Construction activity however cooled, falling 1.6 percent from the previous quarter after shooting up 13 percent in the second quarter.
At the same time, Singapore has encouraged investment in higher value industries such as pharmaceuticals and has also tried to boost services by opening two casinos, encouraging more tourism and becoming a center for private banking. In a recent article posted on the Singapore Business Review site, several reasons were given for entrepreneurs to invest in this country:
Information Technology: Twitter recently opened its headquarters here and next year Netflix is expected to establish its Asian regional hub in the country.
Healthcare and Med-Tech: Singapore acts as a medical incubator with more than 100 med-tech SMEs. The sector has grown from $1.5 billion in manufacturing output in 2000 to $5.5 billion in 2014.
Retail: Singapore is Asia’s main shopping haven with wide choices of products and competitive prices.
Education: The country is focusing on innovative programs for 2016 including the government's ‘SkillsFuture’ initiatives where all Singaporeans aged 25 and older will receive $500 worth of credit to be used for continued professional training. In addition, the government has set aside $1 billion for continuing education training until 2020.
China Watch
Of major concern in Singapore for growth in 2016 is China’s economic situation and whether the country’s rebalancing programs will survive. Any wavering there could shake Singapore’s financial system and lead to a sharp fall in economic growth.
"With low commodity prices, the anticipated normalization of US monetary conditions and volatility in the Chinese stock market, regional countries could face sudden and large capital outflows, resulting in added pressures on their currencies and asset markets," the MTI statement said.
Meanwhile, Singaporeans continue to remain cool.