Economy of Singapore - Macro-economic Trend

Macro-economic Trend

This is a chart oftrend of gross domestic product of Singapore at market prices estimated by the International Monetary Fund.

The government promotes high levels of savings and investment through a mandatory retirement savings scheme known as the Central Provident Fund, and large portions of its budget are expended in education and technology, with the former having a current rate as of 21% in 2001 compared to spending in the United States of 4%. However, the figures may be misleading as the majority of US education funding comes from the state level, not federal. It also owns Temasek-linked companies (TLCs, companies that are linked to the government's investment arm) - particularly in manufacturing - that operate as commercial entities and account for 60% of GDP. As Singapore looks to a future increasingly marked by globalization, the country is positioning itself as the region's financial and high-tech centre in competition with other East Asian cities.

Singapore's strategic location on major sea lanes and industrious population have given the country an economic importance in South-east Asia disproportionate to its small size. Upon separation from Malaysia in 1965, Singapore was faced with a lack of physical resources and a small domestic market. In response, the Singapore Government adopted a pro-business, pro-foreign investment, export-oriented economic policy combined with state-directed investments in strategic government-owned corporations. Whilst nominally socialist in the 1960s, the ruling party increasingly became openly capitalist but self-described as 'pragmatic', described by some as a euphemism for capitalism with authoritarian social controls. Singapore's government moved towards guiding the economy and investing in medicine and infrastructure. Living standards steadily rose, with more families moving from a lower-income status to middle-income security with increased household incomes. During a National Day Rally speech in 1987, Lee Kuan-Yew claimed that (based on the homeownership criterion) 80% of Singaporeans could now be considered to be members of the middle-class.

Singapore's economic strategy produced real growth averaging 8.0% from 1960 to 1999. The economy picked up in 1999 after the regional financial crisis, with a growth rate of 5.4%, followed by 9.9% for 2000. However, the economic slowdown in the United States, Japan and the European Union, as well as the worldwide electronics slump, had reduced the estimated economic growth in 2001 to a negative 2.0%. The economy expanded by 2.2% the following year, and by 1.1% in 2003 when Singapore was affected by the SARS outbreak. Subsequently, a major turnaround occurred in 2004 allowed it to make a significant recovery of 8.3% growth in Singapore, although the actual growth fell short of the target growth for the year more than half with only 2.5%. In 2005, economic growth was 6.4%; and in 2006, 7.9%.

Singapore's largely corruption-free government, skilled workforce, and advanced and efficient infrastructure have attracted investments from more than 3,000 multinational corporations (MNCs) from the United States, Japan, and Europe. Foreign firms are found in almost all sectors of the economy. MNCs account for more than two thirds of manufacturing output and direct export sales, although certain services sectors remain dominated by government-linked corporations.

To maintain its competitive position despite rising wages, the government seeks to promote higher value-added activities in the manufacturing and services sectors. It also has opened, or is in the process of opening, the financial services, telecommunications, and power generation and retailing sectors up to foreign service providers and greater competition. The government has also attempted some measures including wage restraint measures and release of unused buildings in an effort to control rising commercial rents with the view to lowering the cost of doing business in Singapore when central business district office rents tripled in 2006.