24th ser manuscript 5...appendix 2: curricula vitae of presenters, discussants & chairperson 102...

TheSingaporeEconomicRoundtable

The Singapore Economic Roundtable (SER) is a forum of leading economists,policymakersandbusinessleaderswhogathertwiceayeartodiscussimportantissuesthataffectSingapore’spositionintheglobaleconomy.ItdeliberatesontherolethatgovernmentagenciesandtheprivatesectorinSingaporeshouldplayinmeetingnewchallengesfacingtheSingaporeeconomy.

AbouttheInstituteofPolicyStudies

TheInstituteofPolicyStudies(IPS)wasestablished in1988asan independentthink‐tanktostudyandgeneratepublicpolicyideasinSingapore.IPSbecameanautonomousresearchcentreoftheLeeKuanYewSchoolofPublicPolicyattheNationalUniversityofSingaporein2008.Today,IPScontinuestoanalysepublicpolicy,buildbridgesbetweenthoughtleaders,andcommunicateitsfindingstoawideaudience.TheInstituteexaminesissuesofcriticalnationalinterestacrossavariety of fields, and studies the attitudes and aspirations of Singaporeans throughsurveysofpublicperception.Itadoptsamulti‐disciplinaryapproachinits analysis and takes the long‐term view in its strategic deliberation andresearch.

TheTwenty‐FourthSingaporeEconomicRoundtable.November2015EditedbyBhaskaran,Manu;Yahya,Faizal;andLau,WilfredISSN2424‐9203(e-periodical)©Copyright2017NationalUniversityofSingapore.AllRightsReserved.

InstituteofPolicyStudiesLeeKuanYewSchoolofPublicPolicyNationalUniversityofSingapore1CClunyRoadHouse5Singapore259599Tel:+6565168388Fax:+6567770700Web:www.lkyspp.nus.edu.sg/ipsRegistrationNumber:200604346E

TheTwenty‐Fourth

SingaporeEconomic

Roundtable

November2015

Jointlyorganisedby

InstituteofPolicyStudies&TheBusinessTimes

Editedby

ManuBhaskaranFaizalBinYahya

WilfredLau

ACKNOWLEDGEMENTSOFSPONSORS

TheInstituteofPolicyStudieswouldliketothankToteBoardandSingaporePoolsfortheir

kindsupportofthispublication

ContentsFOREWORD 5MrManuBhaskaranAdjunctSeniorResearchFellowInstituteofPolicyStudies,SingaporeSECTIONI:SINGAPORE’SECONOMICOVERVIEWChapter1RecentEconomicDevelopments 7MsDeborahTanSeniorEconomist,DomesticEconomyDivisionEconomicSurveillanceandForecastingDepartmentMonetaryAuthorityofSingaporeSECTIONII:MACRO‐ECONOMICOUTLOOKFORSINGAPOREANDIMPLICATIONSFORPOLICYChapter2Macro‐EconomicOutlookforSingaporeandImplicationsforPolicy 27MsDeyiTanExecutiveDirector,ResearchMorganStanleyChapter3PresentationbyDiscussant:MusingsaboutMonetaryPolicy 42MrVishnuVarathanSeniorEconomistandHeadEconomics,MarketandStrategy,SingaporeTreasuryDivisionMizuhoBankLtdChapter4DiscussiononMacro‐EconomicOutlookforSingaporeandImplicationsforPolicy 62SECTIONIII:SINGAPORE’SECONOMYBEYOND50Chapter5Singapore’sEconomyBeyond50 68DrAlexMourmourasDivisionChiefAsiaandPacificDepartmentInternationalMonetaryFund

Chapter6PresentationbyDiscussant 79AssociateProfessorTohMunHengDepartmentofStrategyandPolicyNUSBusinessSchoolNationalUniversityofSingaporeChapter7DiscussiononSingapore’sEconomyBeyond50 90CONCLUSIONS 94Appendix1:ListofParticipants 99Appendix2:CurriculaVitaeofPresenters,Discussants&Chairperson 102Appendix3:Abbreviations 107

5

Foreword

ManuBhaskaranAdjunctSeniorResearchFellowInstituteofPolicyStudies,Singapore

6

1.RecentEconomicDevelopments1

MsDeborahTan

SeniorEconomist,DomesticEconomyDivisionEconomicSurveillanceandForecastingDepartment

MonetaryAuthorityofSingapore(MAS)

1.1ExternalDevelopmentsandOutlook

Global economic growth slackened in the second quarter of 2015.

Emergingeconomiessawaweakeningintheirgrowthmomentum,while

thereboundintheUSwasunabletofullycompensateformoresubdued

outturnsintheEurozoneandJapan(Figure1.1).

Figure1.1 1The views and analyses contained in this presentation are the author’s andshouldnotbeattributedtoMAS.

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2014 Q2 Q3 Q4 2015 Q2

%

YOY

QOQ SAAR

Global GDP Growth

RECENTECONOMICDEVELOPMENTS

7

Growth in the G3 economies is expected to rise to 1.7% in 2015, and

further to 2.0% in 2016 (Figure 1.2, left). However, this is unlikely to

providethesamesupporttoglobalgrowthasinpreviousupturns,asthe

improvementwillbedrivenmorebyconsumptionofservices,whichhave

lower import content. Notably, there has been a significant fall in the

nominalvalueofmerchandiseimportsintotheG3sincelate2014(Figure

1.2,right).

Figure1.2

Asiaex‐Japanwillalsohavetocontendwiththedownwardmomentumin

China’s economy and tightening financial conditions accompanied by

risingborrowing risks.Consequently, the immediategrowthoutlook for

GDP Growth Forecasts Asia-7 Exports & G3 Imports (Nominal)

‐20

‐10

0

10

20

30

2011 2012 2013 2014 2015 Sep

YOY % Growth (3MMA)

China

Asia‐7

NEA‐2

ASEAN‐4

G3(Imports)

Q1 2015

Q2 2015

Q32015 2014 2015F 2016F

q‐o‐q SAAR y‐o‐yTotal* 3.9 3.3 … 4.1 3.9 4.0G3* 2.1 1.8 … 1.3 1.7 2.0US 0.6 3.9 1.5 2.4 2.5 2.6Japan 4.5 −1.2 … −0.1 0.6 1.3Eurozone 2.1 1.4 … 0.9 1.5 1.7

NEA‐3* 2.9 −0.9 … 3.1 2.1 2.4Hong Kong 3.0 1.6 … 2.5 2.3 2.2Korea 3.3 1.3 5.0 3.3 2.5 2.9Taiwan 2.3 −6.6 3.8 1.4 2.4

y‐o‐yAsia ex‐Japan 5.0 4.7 … 5.1 4.7 4.8ASEAN‐4* 4.8 4.5 … 4.7 4.5 4.6Indonesia 4.7 4.7 4.7 5.0 4.7 5.0Malaysia 5.6 4.9 … 6.0 4.8 4.6Philippines 5.0 5.6 … 6.1 5.7 5.9Thailand 3.0 2.8 … 0.9 2.6 3.3

China 7.0 7.0 6.9 7.3 6.8 6.5India** 7.5 7.0 … 6.9 7.3 7.5

THETWENTY‐FOURTHSINGAPOREECONOMICROUNDTABLE

8

theregionhasdimmed,withgrowthprojectedtocomeinlowerat4.7%

in2015,beforerisingto4.8%in2016.

In real (price‐adjusted) terms, Asia ex‐Japan’s export growth has also

contracted, even though G3 real import growthwas steady (Figure 1.3,

left).Over themediumterm, theoutlook forAsiaex‐Japan’sexportshas

downshifted due to several factors, amid a generalised slowdown in

globaltrade.

First, less robust investment activity in the G3 is likely to continue

depressingAsiaex‐Japan’sexports,asinvestmenttendstobemoretrade‐

intensivethanothertypeofexpenditures.

Second, there are tentative signs of shifts in the region’s cross‐border

production networks. As China continues tomove up the technological

ladder, Chinese manufacturers may have intensified the vertical

integration of their domestic production processes and accordingly,

dependlessonimportedcomponentsfromtheregion.Inturn,theshare

of imports that went into China’s processing and assembly plants for

subsequentexporthasfallensteadilyovertime(Figure1.3,right).


9

Figure1.3

1.2DomesticDevelopmentsandOutlook

Against the weaker external backdrop, domestic economic activity has

been lacklustre over the last six months, with the Singapore economy

registeringamarginalexpansionof0.1%onaQoQSAARbasisinQ3,after

contractingby2.5%inQ2.Onayearagobasisgrowthhasaveraged2.3%

inthefirstsixmonthsoftheyear(Figure1.4,left).

The trade‐related sectorsbore the brunt of the slowdown in the region

over the past quarters, while activity in the domestic‐oriented sectors

generallyheldup(Figure1.4,right).

Asia-7 Exports & G3 Imports (Real)

‐4

0

4

8

12

16

‐5

0

5

10

15

20

2011 2012 2013 2014 2015 Q2

YOY % Growth

YOY % Growth

Asia‐7

NEA‐2

G3 (Imports), RHS

ASEAN‐40

5

10

15

20

25

30

35

1998 2004 2010 2014

% of Man

ufactured Exports

Processing and Assembling

Processing with Imported Materials

China’s Processing Imports


10

Figure1.4

Looking ahead, weakness in the external environment is like to persist

andweighonthedomesticoutlook.

The slowdownacross ourmajor regional tradingpartners, inparticular

Malaysia,IndonesiaandChina,isexpectedtoimpingeonSingapore’snear

termgrowth, given our strong economic linkageswith these economies

(Figure1.5,left).

Whiletheregionaleconomiesareexpectedtoremainweak,theG3could

providesomecountervailingsupportinthenearterm.However,thestep‐

upinUSGDPgrowthhasbeenlargelyconsumption‐driven,whileimports

of goods and services have been weak (Figure 1.5, right). As a result,

90

100

110

120

130

2010 2011 2012 2013 2014 2015 Q3

Index (2010=100), SA

External‐Oriented

Domestic‐Oriented

Trade‐ related

Economic Activity Index

2012 Q3 2013 Q3 2014 Q3 2015 Q3*

‐6

‐3

0

3

6

9

12

Per Cent

Singapore’s GDP Growth

* Advance Estimates

YOY

QQQ SAAR


11

relative to previous recoveries, the positive spillovers to Singapore’s

trade‐relatedsectorsarelikelytobecapped.

Figure1.5

There are, however, some pockets of strength within the economy, for

instance,intheoil‐relatedindustry.

In the midstream segment, stockpiling by oil traders, as well as the

accumulation of China’s strategic crude oil reserves, could lead to an

intermittentincreaseinactivityofoiltrading,transportandstorage.

Supply‐side expansions, particularly in the chemicals segment, should

also augment the uplift from improving demand conditions in the G3,

US Import Growth

2015Q2

2002 2004 2006 2008 2010 2012 2014

‐40

‐20

0

20

40

YOY % Growth

Average2002‐08

9.5%

Average2010‐13

9.2%

Average2014‐Q32015 Q20.7%

Singapore’s Economic Linkages with Regional Economies

0

5

10

15

20

25

DomesticExports

Re‐exports Tourism FDI inSingapore*

% of Total

China Indonesia Malaysia

8.2

11.4

20.0

9.9

11.8

13.4

8.9

12.1

11.9

3.2

0.41.9

* 2013 data


12

evenas theupstreamoil andgas segment continues to face challenging

conditions(Figure1.6,left).

Meanwhile, the domestic oriented sectors as a whole is expected to

remain firm. Essential services— such as healthcare and education—

will be supported by structurally higher demand and increased

governmentexpenditure(Figure1.6,right).

Figure1.6

Onbalance,Singapore’sGDPgrowthislikelytocomeinataround2–2.5%

for2015asawhole,withriskstiltedtowardsthedownside.Theeconomy

isexpectedtoexpandatabroadlysimilarpacein2016.

Sectoral Contribution to GDP Growth

2011–13 Average 2014

‐1

0

1

2

3

4

5

% Point Contribution

to YOY Growth

Cyclically‐sensitive DomesticEssential DomesticExternalOthers

90

100

110

120

130

2013 2014 2015

Index (Q1 2013=100),SA

Downstream

Midstream

Upstream

Total Oil‐related

Oil-Related Activities

Q3


13

More broadly, the Singapore economy is adapting to ongoing

reconfigurations in global supply chains. In recent years, the rise in

China’s capabilities in the IT intermediate goods space has led to some

slowdown in imports of such products from the rest of the region.

However, the impact of this development could be mitigated by

strengtheningtradelinkageswithemergingnodesintheregionalsupply

chains.

Duringthefirstthreequartersof2015,Singapore’sexportstotheCLMV

economies were the main source of support (Figure 1.7, left). In the

electronics space, Singapore’s semiconductor exporters have benefited

fromthesurge,especiallyinVietnam’stechtrade,withbothdomesticand

re‐exportstoVietnamincreasingsignificantlyoverthepastfewyears.

Moreover,Vietnam’sgrowingdominanceasanelectronicsassemblyhub

doesnotposedirectcompetitiontoSingapore’s ITmanufacturers,given

thelowdegreeofproductsimilarity(Figure1.7,right).

Going forward,deepereconomic integrationamong theASEANmember

states will herald new opportunities for Singapore’s exporters. For

instance,increasedinvestmentactivityintheCLMVcouldsupportgreater

demand for refined oil exports, due to greater energy requirements in

theirindustrialisationdrives.


14

Figure1.7

Looking furtherahead, thenextphaseof economicdevelopmentwillbe

characterised by a knowledge‐ and skills‐based economy, with the

associated productivity gains overcoming Singapore’s supply‐side

constraints. In this regard, the development of the technology &

innovation cluster is critical in supporting the economy’s upgrade to a

newproductionfrontier.

Over the last decade, Asia has made significant headway as the

production base for high‐tech products, as shown by the increase in

technologicalintensityofAsia’sshareofmanufacturingexportsbetween

2005 and 2013 (Figure 1.8, left). This trend is likely to persist, with

Singapore contributing to the high‐tech and high‐value goods and

servicesspace.

Singapore’s Export Growth by Regions

2011 2012 2013 2014 2015 Jan–Sep

‐10

‐5

0

5

10

% Point Contribution to

YOY G

rowth

China G3 ASEAN‐4 CLMVs Others

Singapore’s IT Export Similarity Index (2013)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

MYS

PHL

KOR

JPN

USA

FRA

CAN

CHN

GER

THA

UK

ITA

NZ

NEL

SWZ

BEL BRZ

AUS

IND

MEX

VNM

Index


15

The Singapore government has also pledged its commitment to

supportingthedevelopmentofR&Dandinnovationcapabilities.Assuch,

domestic R&D activities, such as total R&D expenditure andmanpower

employed, have seen steady growth over the past decade (Figure 1.8,

right).

Figure1.8

Against this backdrop, capital inputs associated with the digital

revolution, such as ICT hardware, software and R&D, will be the key

driversofthefutureSingaporeeconomy.

Onthecapital front,Singaporealreadyhasoneof thehighestcapital‐to‐

labour ratios in the world, but there is further room to improve the

currentadoptionofICTcapitalinthecorporatesector(Figure1.9,left).A

numberofgovernmentinitiatives,suchastheSmartNationprogramme,

% Shareof Man

ufacturing Exports

Asian Exports by Tech intensity

0 1 2 3

No. ofOrganisations

Manpower

Expenditure

Multiple of Respective Values in 2000

Measures of R&D Activities in Singapore (2013 vs 2000)

2.5

1.9

1.5

0

5

10

15

20

25

Technology IntensityLow High

2005 2013


16

havebeenrolledouttoprovidesupporttowardsachievingthisobjective.

There is also a growing emphasis on intellectual property, which is

prevalentamongmajorUSITfirms,spanningbothITmanufacturingand

services.

A similar trend can also be observed in Singapore at the macro level,

where the share of intellectual property products in total real capital

stock (excluding construction & works) has gradually increased to just

over20%(Figure1.9,right).

Given the crucial role of intellectual capital, R&D and ICT, a

complementary labour force with the relevant technical expertise for

thesefrontierindustrieswillalsobecritical.

Figure1.9

Composition of Capital Stock in Singapore

0

20

40

60

80

100

1990 1994 1998 2002 2006 2010 2014

% Share of Non‐construction

Net Cap

ital Stock

Machinery & Equipment

Transport Equipment

Intellectual Property Products

Capital Per Worker (2014)

0

20

40

60

80

100

120

US$

Thousand PPP, 2000 Prices

MEX

DNK

BEL

CHELUX

SWEUSA

GRCHKGCZE

HUN

CANJPN

IRLKOR

AUT

NLD

PRTESP

POL

GBR

ISRFRAISL

CHL

ITAFIN

NZL

DEU

TUR

AUS

NOR

SGP


17

1.3Wage‐PriceDevelopmentsandOutlook

Overallnetemploymentgains fell inthe firsthalfof2015,reflectingthe

softereconomicbackdropandongoingstructuralreconfigurationsinthe

economy.Ledbythisslowdown,EPG’slabourmarketpressureindicator

suggested that labour market tightness at the economy‐wide level has

easedslightly(Figure1.10,left).

However, the vacancy rates for some industries including retail trade,

information & communications and financial & insurance increased

further. This suggests that firms in these sectors continued to face

significant difficulty in filling positions. As a result, underlying wage

pressuresremainedfirm,withresidentwagegrowthrisingto3.4%inH1

2015,from1.6%intheprecedinghalf‐yearperiod(Figure1.10,right).

Figure1.10

Labour Market Pressure Indicator

2006 2008 2010 2012 2014

‐3

‐2

‐1

0

1

2

No. o

f Stan

dard Deviations from 2005–14 Ave

Tighter labour marketrelative to

10‐year average

More slack in labour market compared to 10‐year average

2015H1

0.46 0.48 0.44

Overall Resident Wage Growth

2005 2007 2009 2011 2013 H2

‐4

‐2

0

2

4

6

8

% YOY

2014 2015H1H1 H2

10‐year Ave

(3.6%)

3.0

1.6

3.4


18

Both MAS Core Inflation and CPI‐All Items inflation have remained

subduedinthepasttwoquarters,largelyduetoloweroilprices,aswell

asbudgetaryandotherone‐offmeasures(Figure1.11,left).

MAS Core Inflation, which excludes the costs of accommodation and

privateroadtransport,hasbeenonadowntrendsincethemiddleof2014

butstabilisedmorerecently,averaging0.3%inQ2–Q32015,comparedto

1.1% inQ1.Meanwhile,CPI‐All Items inflationcontinued to easedue to

furtherdeclinesinhousingrentalsandcarprices,fallingto−0.6%inQ3

from−0.3%inQ1(Figure1.11,right).

Figure1.11

CPI-All Items Inflation and MAS Core Inflation

‐2

0

2

4

6

8

2007 2009 2011 2013 2015

% YOY

MAS Core Inflation

CPI‐All Items Inflation

Contribution to CPI-All Items Inflation

2013 Q3 2014 Q3 2015 Q3

‐2

‐1

0

1

2

3

4

% Point Contribution to YOY Growth

FoodServicesOil‐relatedAccommodationPte Rd Trpt ex‐PetrolOthers


19

Goingforward,thelabourmarketisexpectedtosettleatalowerlevelof

jobcreation.Thisisintandemwiththestep‐downinrealGDPgrowth,as

wellastheslowerriseinresidentlabourforce(Figure1.12).

Nevertheless,evenasjobcreationmoderates,headcountgainswillstillbe

firmintheessentialdomestic‐orientedsectorssuchascommunity,social

andpersonalservices,wheredemandisresilient.

Accordingly, pockets of labour market tightness will persist in these

segments, supporting higher pay increments. Overall resident wage

growthisexpectedtopickupfromthe2.3%in2014,andcomeinatclose

toits10‐yearhistoricalaverageof3.6%in2015and2016.

Figure1.12

Vacancy Rate By Sector

Construction

Man

ufacturing

Wholesale Trade

Tran

sport & Storage

Finan

cial & In

surance

Professional Services

Real Estate Services

Inform

ation & Comm

Admin & Supp Services

Retail Trade

Accom & Food Services

0

2

4

6

8

Per Cen

t, SA

Q1 2015 Q2 2015 2005–14 AverageCommunity, Social &

Personal Services

Net Employment Outlook

2007 2009 2011 2013 2015

‐60

‐40

‐20

0

20

40

60

Per Cen

t, SA

Q4


20

Domesticcostpressures,particularlyduetohigherwages,areexpectedto

remain. A range of indicatorswhich proximate “domestically‐generated

cost inflation” suggests that domestic cost increases was centred at a

stable but firm 3% YoY in the first half of 2015. This trend is likely to

persist going forward, given binding labour supply constraints (Figure

1.13,left).

However, the overall pass‐through of higher domestic costs to inflation

willlikelybemodestagainstabackdropofsubduedeconomicgrowth.

Nevertheless, therewill be varying degrees of cost pass‐through across

thecategories.Forhealthcareandeducationservices,whichhaveahigher

labour share and relatively inelastic demand, the cost pass‐through is

likelytobestronger.

Meanwhile,externalsourcesofinflationshouldbegenerallybenign,given

ample supplybuffers in themajor commoditymarkets andweakglobal

demandconditions.Weexpectoilpricestonowstay“lowerforlonger”,as

the supply overhang is likely to persist. Oil prices are projected to

increaseonlyslightlyin2016(Figure1.13,right).Globalfoodcommodity

prices could face some upward pressure due to the ongoing El Niño

phenomenon, though this would be tempered by abundant food

stockpiles.


21

Figure1.13

Againstthisbackdrop,MASCoreInflationisexpectedtopickupgradually

over the course of 2016 towards its historical average as the

disinflationaryeffectsof loweroilprices,aswellasbudgetaryandother

one‐offmeasuresdissipate.Fortheyearasawhole,itisexpectedtocome

inbetween0.5–1.5%in2016,upfrom0.5%in2015(Figure1.14,left).

CPI‐AllItemsinflationcouldcontinuetobedampenedbylowercarprices

and imputed rentals on owner‐occupied accommodation (Figure 1.14,

right), given an expected increase in the supply of COEs and newly

completedhousingunits.For2016asawhole,CPI‐All Items inflation is

projectedtocomeinbetween‐0.5and0.5%,comparedtoaround−0.5%

in2015.

Measures of Domestically-generated Cost Inflation

‐15

‐10

‐5

0

5

10

15

20

2001 2004 2007 2010 2013

YOY % Change

2015Q2*

Range of Domestically‐generated Inflation

Measures

AverageMedian

Brent Oil Futures Prices

Oct

Oct2015

Apr 2015

45

50

55

60

65

70

75

80

2015 2016 2017 2018 2019 2020

US$

Per Barrel


22

Figure1.14

1.3MonetaryPolicyStance

In October 2015, MAS reduced the S$NEER policy band slightly, while

keepingitonamodestandgradualappreciationpath(Figure1.15).This

measured adjustment took into account weakened expected growth

outputfortheSingaporeeconomy,evenasMAScoreinflationisexpected

to pick up gradually. Together with the unscheduled policy easing in

January 2015, the October policymove will be supportive of economic

growthgoing into2016,whileensuringprice stabilityover themedium

term.

Y-O-Y CPI-All Items and MAS Core Inflation Forecasts

‐10123456

2010 2011 2012 2013 2014 2015 2016

% YOY

MAS Core Inflation

Q4

2016:0.5–1.5%

Forecast

‐10123456

2010 2011 2012 2013 2014 2015 2016

% YOY

Q4

ForecastCPI‐All Items Inflation

Contribution to CPI-All Items Inflation

2010 2011 2012 2013 2014 2015F 2016F

‐2

0

2

4

6

Food

Services

Oil‐related

Accommodation

Pte Rd Trpt ex‐Petrol

Others

% PointContribution to YOY Growth


23

Figure1.15

2010 2011 2012 2013 2014 2015

96

98

100

102

104

106

108

110

112

114

116

Index (Q1 2010=100)

S$NEER

Neutral Policy

Increase Slope Slightly & Widen Band

Shift to Modest & Gradual

Appreciation & Re‐centre

Re‐centre

Reduce Slope

Increase Slope Slightly & Restore Narrower Band

Maintain

Reduce Slope

Maintain

Modest & Gradual Appreciation

Reduce Slope Slightly

Q3

24

2.Macro‐EconomicOutlookforSingaporeand

ImplicationsforPolicy

MsDeyiTanExecutiveDirector,Research

MorganStanley

2.1Introduction

The presentation examines Singapore’s growthmodel over the past 50

years. It highlights the emerged challenges in the form of the 3Ds —

Demographics,DebtandDeflation— thatSingapore faces, andsuggests

that the possible solutions to these challenges come in the form of

productivitygrowthandamacro‐rebalancingstrategy. Itconcludeswith

the implications of slower structural growth for Singapore’s currency

policy.

2.2Singapore’sGrowthModel

Singaporehasseenatremendousgrowthsupercycleoverthepast40to

50years inamostly low‐inflationenvironment,upliftingittooneofthe

richest countries in the world. This growth was achieved through a

uniquegrowthmodelthatcombinedmarketelementswithahighlevelof

stateinvolvement.

Thegrowthmodelcomprisedfourbuildingblocks(Figure2.1).Thefirst

building block was the successful creation of an effective operating

MACRO‐ECONOMICOUTLOOKFORSINGAPOREANDIMPLICATIONSFORPOLICY

25

environment, which laid the foundation for growth. This entailed the

institutional and regulatory frameworks, as well as the hard and soft

infrastructure.

Thesecondbuildingblockwasanoffensivegrowthstrategyviaactively

picking winners and growth sectors, which was complemented by the

developmentofGLCsinsectorswheretherewasalackofprivatesector

expertiseorcapital.

Thethirdbuildingblockwastheoffensivegrowthstrategyviatheimport

ofcapitalandlabour,ofwhichSingaporehadbeenaggressivelyattracting

FDIandMNCsaswellasenlargingitsforeignworkforce.

And finally, in order to mitigate the volatility from an export‐oriented

strategy, Singapore at the same time undertook a defensive growth

strategy, by channelling its savings towards building external assets via

sovereignwealthfunds.


26

Sources:CEIC,MorganStanleyResearch

Figure2.1

2.3Challenges:The3Ds

However, macro‐challenges that have since emerged compel a

reconsideration of the growth strategy. Singapore now faces a 3D

problemofdebt,demographicsanddeflation,whichtogetherisapotent

forcetoreckonwith(Figure2.2).

A Growth Supercycle and a Mostly Lowflation-type Environment

Building Block #1: Creating an Effective Operating Environment as the Foundation

Building Block #2: An Offensive Growth Strategy via the Picking of Winners and GLCs

Building Block #3: An Offensive Growth Strategy via the Import of Capital and Labour

Building Block #4: A Defensive Growth Strategy of Channeling Savings towards Building External Assets

SG

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

4 6 8 10 12

Real GDP Growth (1965‐2013 CAGR, LCY)

Log of GDP per capita (US$, nominal) (2013)


27

Figure2.2

High leverage in the system is partly a consequence of loosemonetary

policyby central banks around theworld, inparticular theUSFed, and

Singapore’s open capital account. The extraordinarily loose global

monetary policy of major central banks such as the US Fed caused

Singaporetoimportunintendedandunproductivecapitalintheformofa

creditboom.Highleveragefrontloadsgrowth,butnotwithoutanexpense

of future growth as the resultant debtwill be a drag on growth for an

extendedperiodoftime.

Thisdevelopmentcomesalongsideagreyingdemographicstrendaswell,

whichisfurthercompoundedbythefactthatpolicymakers’pastattempts

tocopewithlowlocalpopulationgrowththroughimmigrationpolicyhas

nowbeenreversed.Addedtothesetwoissuesisdeflationintheeconomy.

A 3D Problem of Debt, Demographics and Deflation

Debt

Demographics (weakened further by tighter immigration policy)

Deflation


28

Demographics

Given that slower growth has begun to bite, it has been questioned if

policymakerswouldreturn to looser immigrationpolicy. It is likely that

immigration will settle at a low rate, as the government is unlikely to

backtrackaggressivelyonimmigrationpolicy.

At the same time, Singapore’s low total fertility rate (TFR) means that

zeronet immigrationisnotarealisticscenarioeither.Singaporehasthe

fourth lowestTFR in theworld.Assumingthat thecurrentdemographic

trendpersists,theworkingagepopulationgrowthinthenextfewyearsis

likelytobeflat,andfrom2020onwards,willcontractatabout0.5%per

year. This essentially poses a negative growth shock to Singapore,

weighingdownonpotentialgrowth.Keepinganopenimmigrationpolicy

is importantnot just for economic growthbut also to fund the growing

fiscal outlay of a greying population for healthcare and social needs

amongstothers.

However,areturntoanaggressiveimmigrationpolicyisunlikely.First,a

five‐year political cycle is too short a timeframe for policymakers to

tinkerwith immigrationpolicy.Second, thegovernment’sdetermination

topushforproductivitygrowthwillplaceacurbonimmigrationaswell

as foreignmanpower, leading to lowergrowthconditions in the interim

period.Whilepreviousnationalproductivitydriveshadfalteredalongthe

way, the experience this time is likely to be different given the lack of

otherpolicyoptionstoaddresssocioeconomicconsiderations.


29

Debt

Slowing growth and rising interest rates, combined with high leverage

ratesinSingaporeraisetheriskofacatharticboom‐bustcycle.Figure2.3

plots, for Asia ex‐Japan countries, bank credit as percentage of GDP in

2014 against increase in bank credit as percentage of GDP from 2007–

2014. Figures 2.4 and 2.5 show household and corporate debt as

percentageofGDPand thechange from2007–2014, respectively.These

chartsrevealSingapore’shighdebttoGDPratioandhighdeltarelativeto

peercountriesinthepastfewyears.

Sources:CEIC;variouscentralbanks;MorganStanleyResearch

Figure2.3

CH

HK

IN

ID

KR

MY

PH

SG

TW

TH

0%

20%

40%

60%

80%

100%

120%

140%

160%

0% 50% 100% 150% 200% 250% 300% 350%

Incre

ase i

n b

an

k c

red

it (

2007-2

014)

(%o

f G

DP

)

Bank credit (% of GDP), 2014


30


Figure2.4

CH

HK

IN

IDKR

MY

PH

SG

TW

TH

0%

5%

10%

15%

20%

25%

30%

35%

0% 20% 40% 60% 80% 100%

Inc

rea

se

in

ho

us

eh

old

de

bt

(20

07-2

014)

(%o

f G

DP

)

Household debt (% of GDP), 2014

Asian Ex-Japan Household Debt


31


Figure2.5

While under the rightmacroeconomic conditions, high leverage can be

tolerated for an extended period time, high leverage also invariably

increases the vulnerability of the economy to rising interest rates,

declining asset prices and slowing growth — conditions that are all

startingtomanifest in thecurrentmilieu,generatingdownsiderisks for

Singapore.

CH

IN

ID

KR

MYPH

SG

TW

TH

0%

5%

10%

15%

20%

25%

30%

35%

40%

0% 20% 40% 60% 80% 100% 120% 140%

Incre

ase i

n c

orp

ora

te d

eb

t (2

00

7-2

014

) (%

of

GD

P)

Corporate debt (% of GDP), 2014

AxJ Corporate Debt


32

Furthermore, as a regional financial hub, a large share of the credit

intermediation conducted by Singapore in recent times is for emerging

Asia,whichatpresentissufferingfromreductionsingrowthrate.Insofar

as bank loan portfolios are exposed to neighbouring emerging market

risks,itiscrucialtokeepaclosewatchonsignsofloomingproblems.

The high leverage situation in Singapore requires the economy to

deleverage,bringingdownthedebttoGDPratio,inordertorechargefor

the next growth cycle. However, a look at previous episodes of

deleveragingprocess—withtheexceptionofthedisorderlydeleveraging

seen in the 1998 Asian Financial Crisis — shows that deleveraging

normally happens not through a decline in debt, but through a rapid

increaseinincome.Forinstance,despiteasignificantpropertydownward

cyclebetween1996and2003,householddebtstillroseforthatperiod.It

wasonlyviafasterincomegrowththatSingaporewasabletodeleverage.

Hence, in the current prolonged environment rising interest rates and

secularslowdown(Figure2.6),itisunlikelythatdeleveragingwillbeseen

in Singapore for the next few years. High leverage in Singapore is

expectedstay,anditwillbeanelongatedadjustmentprocesswithcredit

growthstayinglowerforlongeralongsideamoresubduedGDPgrowth.


33

Sources:CEIC;MorganStanleyResearch

Figure2.6

On theotherhand, a cathartic boom‐bust cycle is unlikely tohappen in

Singapore, because such a scenario requires external negative triggers,

either in the formofaglobaldemandshockorapropertyhard landing,

bothofwhicharenotimminent.

A case could be made that Singapore is currently somewhat similar to

Japan or China, both highly leveraged economies but possessing huge

‐8

‐6

‐4

‐2

0

2

4

‐15

‐10

‐5

0

5

10

15

20

Mar‐01

Mar‐02

Mar‐03

Mar‐04

Mar‐05

Mar‐06

Mar‐07

Mar‐08

Mar‐09

Mar‐10

Mar‐11

Mar‐12

Mar‐13

Mar‐14

Mar‐15

Real GDP (%YoY) (LS)

Real 3M SIBOR (using headline CPI) (%) (RS)

Real GDP Growth Decelerating; Real Rates Rising


34

currentaccountsurpluses.Thelargecurrentaccountsurplusenablesthe

centralbanktohavemorecontroloverdomesticliquidityconditionseven

as the economy deleverages and makes adjustments, which essentially

allowsthegovernmentbetterchancesofengineeringasoftlanding.This

is in contrast with countries with current account deficits such as

Indonesia,whichtendtobemoresusceptibletomarketvagaries.

Deflation

Inflation in Singapore has tapered sequentially in the last few quarters

(Figure2.7).Giventhatthetightlabourmarketisoftencitedasasource

of price inflation, the absence of inflation going forward in Singapore

couldturnouttobeabigsurprise.


35

Sources:WorldBank;CEIC;MorganStanleyResearch

Figure2.7

One reason for this lack of inflationary pressure could be that a tight

labourmarketby itself isanecessarybut insufficientcondition todrive

inflation higher — if that is the case Japan should have long since

experienced a rise in inflation. Based on historical evidence, real GDP

growthtendstoleadwagegrowth(Figure2.8),andwagegrowthtendsto

lead CPI growth (Figure 2.9). In the absence of a pickup in real GDP

growth,wagegrowthisunlikelytoincreaseinamaterialway,andhence

‐4

‐2

0

2

4

6

8

10

12

14 1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Singapore inflation (%YoY)

Global inflation (%YoY)

Singapore core inflation (%YoY)


36

a tight labour market would not lead to the kind of upward pressure

expectedonoverallinflation.


Figure2.8

Real GDP Growth Leads Wage Growth

‐10

‐5

0

5

10

15

20

Mar‐96

Mar‐97

Mar‐98

Mar‐99

Mar‐00

Mar‐01

Mar‐02

Mar‐03

Mar‐04

Mar‐05

Mar‐06

Mar‐07

Mar‐08

Mar‐09

Mar‐10

Mar‐11

Mar‐12

Mar‐13

Mar‐14

Mar‐15

Average monthly earnings (%YoY)

Real GDP growth (%YoY)


37


Figure2.9

Tight labourmarketconditionsarehoweverstill likelytomanifest itself

intheformofhigherlabourshareincomeandacorrespondingdeclinein

capitalshareofincomeasreflectedinFigure2.10.Amidlimitedrevenue

growth, corporate profitability is crimped as firms are forced to offer

higherwagesbecauseofthetightlabourmarket.

Wage Growth Leads Inflation

‐5

‐3

‐1

1

3

5

7

9

Mar‐00

Mar‐01

Mar‐02

Mar‐03

Mar‐04

Mar‐05

Mar‐06

Mar‐07

Mar‐08

Mar‐09

Mar‐10

Mar‐11

Mar‐12

Mar‐13

Mar‐14

Mar‐15

Average monthly earnings (%YoY)

Headline CPI (%YoY)


38

In view of this, it is possible that a decrease in corporate profitability

ratherthanhigherinflationisobservedasthelong‐termresultofreduced

laboursupplygrowthandflatliningincomegrowth.


Figure2.10

Tight Labour Market Shows Up in the Form of Rising Labour Share of Income

35%

40%

45%

50%

55%

60%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

GDP: Compensation of employees (% of GDP)

GDP: Gross operating surplus (% of GDP)


39

2.4RaisingProductivity,Re‐ThinkingGrowthModels

Raising productivity is a solution to the problems posed by the 3Ds.

Figure2.11showstherelativelabourproductivityofdifferentcountries.

Singapore lies somewhat in themiddle, behind countries such as Japan,

HongKongandAustralia.Strippingouttheconstructionsectorandfood

and accommodation sector, the numbers improve slightly but still lie

behindmajordevelopedcountries.

TheNordiccountriesofNorway,Denmark,Finland, IcelandandSweden

all have labour productivity ranked at the top of the list. This group of

countries offers lessons to Singapore on productivity improvement as

they have somewhat similar small populations of 5–10 million, a

relativelyhighmedianageofabout37–40years,andcomparableGDPper

capita to Singapore; yet they deliver higher labour productivity than

Singapore,despitehavingaworkingagepopulationgrowthof less than

1%,whichislowerthanthatofSingapore.

Despitebeingviewedaswelfarestates,therealityisthatunemployment

is low in thesecountriesand labour forceparticipationratesarehigher

than that of Singapore. In otherwords, theNordic countries have been

abletoachievemorewithlesswithoutsacrificingincomeinequality.


40

Sources:WorldBank;ILO;CEIC;MorganStanleyResearch

Figure2.11

ImprovingtheEducationSystem

On the education front, Finland’s education system may offer some

insights to Singapore. It comes up verywell inmost education ranking

indexes.Teachingisaverycompetitiveandhighlyregardedprofessionin

Finlandwhere only the best and brightest individuals become teachers.

Classroom sizes are kept small, and teachers are given significant

autonomyindesigningtheeducationcurriculumandcateringtostudents

ofdifferentlearningabilities.Inaddition,thereisafocusoncollaboration

overcompetitioninFinland’seducation,whichisquitedifferentfromthe

situationinSingapore.Somewouldarguethatcollaboration,moresothan

competition,drivesresults.

When it comes to labourmarketpolicies, there is a strong emphasison

lifelong learningandcompetency‐basedqualifications.Thenegativebias

Singapore Labour Productivity Has Room to Improve: What Lessons Do Nordic Countries Offer Singapore?

0

10

20

30

40

50

60

70

80

90

100

Luxembo

urg

Norway

Ireland

Icelan

dSw

itzerland

United States

Den

mark

Swed

enBe

lgium

Fran

ceQatar

Finland

Nethe

rland

sUnited Kingdo

mAu

stria

Germany

Macao

SAR

, China

Italy

Japan

Australia

Canada

Puerto Rico

Singapore ex con

struction/ accom

s & fo

odSpain

Singapore ex con

struction

Hon

g Ko

ng SAR

, China

Israel

Singapore

New

Zealand

Greece

Cyprus

Saud

i Arabia

Korea, Rep

.India

Portugal

Sloven

iaMalta

Bahrain

Czech Re

public

Trinidad

and

Tob

ago

Croa

tiaArgentina

Hun

gary

Poland

Turkey

Lithuania

Chile

Mexico

Latvia

Panama

Bosnia and

Herzegovina

Uruguay

Malaysia

Mauritius

Vene

zuela, RB

Mon

tene

gro

Costa Rica

Russian Fede

ratio

nSerbia

Tunisia

Romania

Dom

inican

Rep

ublic

Brazil

Algeria

Bulgaria

Maced

onia, FYR

Kazakhstan

Albania

Belarus

Colombia

Ecua

dor

Morocco

El Salvado

rAzerbaijan

Guatemala

China

Thailand

Armen

iaGeo

rgia

Ukraine

Sri Lanka

Bhutan

Paraguay

Philipp

ines

Indo

nesia

Moldo

vaVietna

mCa

mbo

dia

2011‐2013 Labour productivity (Real GDP, Const 2005 US$/ Employed) (Indexed to Luxembourg =100)


41

associatedwithavocationaleducationisovercomebymakingiteasyfor

studentswithavocationaleducationtoadvancetouniversities,whichis

similar to what Germany does under its dual track education system.

WhileSingaporeismovinginthatdirection,moreworkonthisfrontcan

probablybedone.

Re‐ThinkingFDI‐DrivenGrowthModel

TheageingdemographictrendobservedinSingaporealsomeansthatthe

existinggrowthmodelneedstochange.Aworkforcegrowingataslower

pacetendstogeneratediminishingmarginalreturnstoadditionalcapital

investment. Figure 2.12 shows the strong correlation betweenworking

age population growth and gross fixed capital expenditure (CAPEX)

growth.


42

Sources:UNPopulation;CEIC;MorganStanleyResearch

Figure2.12

The strategy in the past has been to import FDI through MNCs, as

reflectedintheexcessofexternalliabilitiesoverexternalassetsindirect

investments(Figure2.13).Butiftheprevailingdemographictrendsofan

ageingpopulationandshrinkingworkforcearehere tostay, it impliesa

diminishing return to investment in Singapore, whichwouldwarrant a

shiftinthenationalgrowthstrategyfromattractingMNCsintoSingapore,

It’s All Correlated: A Slowdown in Working Age Population Slows Capex Momentum

‐2%

‐1%

0%

1%

2%

3%

4%

5%

6%

7%

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

25%

30%

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

GFCF (%YoY)(LS)

Working age population (%YoY)(RS)


43

towardsinternationalisingmoredomesticfirms,whichrequiresavibrant

localprivatesector.Adirectconsequenceofthisdevelopmentistheneed

tomoveawayfromtrackingGDPgrowthtoGNIgrowth.


Figure2.13

In order to achieve a more vibrant private sector in Singapore, it is

necessarytounderstandtheintegralfactors.InthecaseofSiliconValley,

FDI Investors Have More Direct Investment Assets in Singapore than Singaporeans Have Abroad

0%

50%

100%

150%

200%

250%

300%

350%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

External assets: Direct investment (% of GDP)

External liabilities: Direct investment (% of GDP)


44

therearethreecriticalfactors:adeeptalentbase;adeepfundingpool,as

wellasstrongcollaborationbetweenuniversitiesandindustry.

2.5CurrencyPolicyinaSlowGrowthWorld

Itisclearfromtheaforementionedpointsthatlowerstructuralgrowthin

Singapore is a hard to avoid (Figure 2.14). In addition,moving forward

Singapore’sgrowthpremiumintermsofthemarginbetweenSingapore’s

GDPgrowthandglobalGDPgrowthislikelytoshrink(Figure2.15).


Figure2.14

Lower Structural Growth Is A Given

‐1

0

1

2

3

4

5

6

7

8

9

10

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

TFP Labour Capital(%‐pt contribution to potential GDP growth)

10Y Avg (1990‐1999)

5Y Avg (2010‐2014)

10Y Avg (2000‐2009)


45

Sources:IMF;CEIC;MorganStanleyResearch

Figure2.15

Inthinkingaboutgrowthandproductivitytrendsoverthelongerrun,itis

shouldbenoted that labour input, capital input andproductivity— the

threedriversofgrowth—are intertwined.Workingagepopulationand

capitalinvestmentsappeartocorrelateclosely(Figure2.16).Onepossible

explanation is that greying demographics reduce both the amount of

savingsavailableforinvestmentsandthereturnstocapitalinvestments..

‐2

0

2

4

6

8

10

12

14

16

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Global real GDP growth (%YoY)

Singapore real GDP growth (%YoY)

From Growth Premium To Growth Convergence


46


Figure2.16

Figure 2.17 suggests that productivity and demographic growth has a

negative correlation; as a population ages, labour productivity growth

tendstoslowdownaswell,althoughtechnologicaladoptionmaybeable

tomitigate this.To theextent that greyingdemographics induces lower

productivity, it does suggest that Singaporewill experience structurally

Capex Share of GDP Likely to Weaken With Greying Demographics

20%

22%

24%

26%

28%

30%

32%

34%

36%

38%

40%

‐2%

‐1%

0%

1%

2%

3%

4%

5%

6%

7%

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Working age population (%YoY)(LS)

GFCF (% of GDP)(RS)


47

lower growth unless the underlying growth structure of Singapore

changes.

Source:WorldBank;CEIC;MorganStanleyResearch

Figure2.17

Lower structural growth, reduced corporate profitability, and low

inflation imply that theslowerslopeofappreciation isprobablyhere to

stay.However,thepolicyscenarioofanoutrightdepreciationisunlikely

Labour Productivity Growth Tends to Correlate Negatively With Median Age

‐2

0

2

4

6

8

10

12

20 25 30 35 40 45

Median age (2010)

Labourproductivity (% 10Y

SG ex construction/accommodation/food

SG overall


48

becausefirst,givenalargecurrentaccountsurplusonecannotarguethat

thecurrencyisseverelyovervalued;andsecond,thegovernment’sstance

hasconsistentlybeentopushforhighervalue‐addratherthantoexploit

cheapcurrencytostrengthenexportsandsupportgrowth.

49

3.PresentationbyDiscussant:MusingsaboutMonetary

Policy

MrVishnuVarathanSeniorEconomistandHead

Economics,MarketandStrategy,SingaporeTreasuryDivisionMizuhoBankLtd

3.1Introduction

The presentation suggests that Singapore’s policy elasticity of demand

may have declined compared to previous global recovery cycles. It

examines and discusses the implications of monetary policy and

structuralreformsontheeconomy.Lastly,thepresentationunderscores

the importance of keeping abreast with the changes in relationships of

macroeconomic variables, and understanding what is driving these

changes.

3.2ReducedPolicyElasticityofDemand

Theglobaleconomy,bymostmeasures,isnotinagreatshape.Thesharp

pullbackinexternaldemand,especiallyasseenintheplungeincontainer

throughput,makeshollowanyconsolationofavertingtechnicalrecession

(Figure 3.1). In addition, despite slight improvements in the latest PMI

data, manufacturing activity in China remains weak (Figure 3.2),

suggesting that external demand‐led pickup in Singapore will not

materialiseinthenearfuture.


50

Sources:CEIC;MizuhoBankSingaporeTreasuryDivision

Figure3.1

PRESENTATIONBYDISCUSSANT:FINANCIALISATIONOFTHEECONOMYANDONGOINGEXISTENTIALCRISIS

51

Sources:Bloomberg;CEIC;MizuhoBankSingaporeTreasuryDivision

Figure3.2

However, Singapore is not alone in this. Figure 3.3 shows a diminished

pickupinAsianexports(China,NIEs,ASEAN‐5)despitearecoveryinthe

US ISMmanufacturing index.This suggests that amuchmore sustained

recovery is needed in the US before demand would feed through to

manufacturingandexportsoftheregion,Singaporeincluded.

Nonetheless, the difficulty in identifying a bottom for the current

economic lethargy in the region raises the overall level of uncertainty

aboutthecurrentenvironmentforpolicymaking.Inaddition,giventhat

monetarypolicy inSingaporeworksmainly throughtheexportchannel,


52

thisraisesthequestionofhoweffectivecurrencypolicywouldbemoving

forward.


Figure3.3

In particular, external headwinds beg the question of monetary policy

elasticity. Asia exports by destination reveals a deficient aggregate

demand(Figure3.4).Vertical integrationofeconomicactivities inChina

has ledtodecliningtradevolumeintheregion,whichcouldweakenthe

economic boost provided by monetary policy via the exports channel.

These factors may buckle the long‐term trend of S$NEER gradual

appreciation(Figure3.5).TheslopereductionofS$NEERinOctoberwas

thesecondeasingdecisioninthisyear,andreflectsthepolicyresponseto

weakerthanexpectedexternalconditions.


53


Figure3.4

Sources:MAS;Bloomberg;CEIC;MizuhoBankSingaporeTreasuryDivision

Figure3.5


54

The S$NEER has historical tended to correspond positively to inflation

unless there are significant shock to growth.Hence, as long as inflation

remainsunderwraps,theS$NEERmayhavescopetobebelowthedefault

appreciationpace(Figure3.6).

Sources:Bloomberg;MizuhoBankSingaporeTreasuryDivision

Figure3.6

3.3WagePressuresLikelytobeCapped

While fairly tight labour market conditions ostensibly pose further

constraintsonpolicy, this ismostlyoverstated.Aggregatedemandslack

intheglobalenvironmentbluntstheeffectofmonetarypolicyeasingon

stimulating export demand. The resultant weaker growth coupled with

the current propertymarket correction should by and large keepwage

pressuresincheck.


55

Figure 3.7 shows that softer growth‐inflation outcome (represented by

the green line) is correlatedwith loosermonetary policy. Although the

figure also shows a positive correlation between wage and monetary

policy, the current tepid economic conditions warrant more

accommodation, and present no compelling reason for tightening

monetarypolicy.


Figure3.7

But this policy stance invariably forces a dilemma. What can be done

about the tight labour market if monetary policy is to remain

accommodative?Toaddressthisquestion,itispertinenttorecognisethat

a tight labour market can be defined and measure in various ways,

dependingonthemetricsused.


56

Basedonmediareportsandanecdotalaccountsontheground, itseems

thatthelabourmarketisnotastightaswhatthebroadnumberssuggest.

The tight labourmarketas indicatedbyheadline joblessrateoverstates

overheating risks given supply‐sidedistortion.Despite the current level

ofoutputandstrongemploymentnumbers,wagepressuresdonotseem

tobeshowingupasmuch.Infact,asshowninFigure3.8,thereappearsto

be a structural break in relationship between unemployment andwage

gains.


Figure3.8


57

This couldbeexplainedpartlybecausewagegains tend tohaveamore

proximate relationshipwithnumber of jobs created (Figure 3.9),which

recently has settled at a lower level. Softer job creation is admittedly

matchedwithreduced laboursupply—bothorganicandinorganic,and

theupshot is thatmonetarypolicyneednot respond to the tight labour

market with “full force” in consideration of the supply distortions and

deficientexternaldemandconditions.

Source:CEIC;MizuhoBankSingaporeTreasuryDivision

Figure3.9


58

Nonetheless,thecurrentsituationraisesquestionsaboutthetypeofjobs

being created. It is clear that the step‐up in levies from 2012 have

translatedintohigherlocalwagesandgreaterwageshareofincome.This

couldexplainsomebutnotallofthedivergencebetweenGDPgrowthand

the job vacancy ratio (Figure 3.10). Other possible factors driving this

divergence include a mismatch of supply and demand in the labour

market and lowerquality jobsbeing created.Hence, informationon the

typeof jobs created and the termsof contract amongothersmatters in

interpretingthesituationofthelabourmarket.

Figure3.10


59

In conjunction, as the property cycle appears to influencewages too, a

prolonged softening in the property market is likely to “de‐pressurise”

wagesfurtherasjoblossesinthepropertysectorshowupmorebroadly

(Figure 3.11). All these factors grant policymakers room for further

accommodation in this difficult restructuring period without having to

jumpthegunoninflationarypressuresfromwages.

Figure3.11


60

3.4InterestRate,ExchangeRateTrade‐off

Admittedly, the aforementioned mitigating factors on the wage front

suggest more flexibility to ease amid downside risks from external

headwinds.Butamoreaccommodativemonetarypolicywillprobablybe

limitedbythetrade‐offbetweenexchangerateeffectsandtheunintended

interestrateeffects,whichcouldposeabuild‐upofbalancesheetrisk.For

instance,therecentsurgeintheSOR(SwapOfferRate)wasmainlydriven

bydepreciationexpectationsontheSingaporedollar(Figure3.12).

Sources:Bloomberg;CEIC,MizuhoBankSingaporeTreasuryDivision

Figure3.12


61

AstrengtheningUSDandentrencheddepreciationexpectationsaboutthe

Singapore dollar could further push up the SOR and SIBOR (Singapore

Interbank Offered Rate), which are closely correlated. Stretched loan

booksandthepropertyslowdownisalreadystiflinggrowthimpetusfrom

credit channels (Figure 3.13), and higher interest rates would only

exacerbatethesituationbyraisingbalancesheetrisks.Thisnotabletrade‐

off coupledwith a diminished “policy elasticity” ofmonetary policy (in

terms of spurring demand) make the case for cautious balance, which

addsanotherlayerofcomplexitytoshort‐termmonetarypolicy.

Source:CEIC,MizuhoBankSingaporeTreasuryDivision

Figure3.13


62

3.5StructuralandFiscalFactors

Structural reforms to lift productivity are a critical complement to

monetarypolicyaccommodation.Tacklingproductivityisthesustainable

approach to keeping unit labour costs (ULC) competitive. In the 2000s,

wage rises followed productivity gains, and this can be sustained quite

easily.Morerecently,wagegainshavegottenaheadofproductivitygains

causing some erosion in business competitiveness in Singapore (Figure

3.14).


Figure3.14


63

Nonetheless, the present cyclical dampeners to wage growth such as a

demand deficit ought to buy some time without undue policy

consternation. In addition, Singapore’s strong primary balance position

providesacomfortablefiscalcushiontosupporttheactivitiestoachieve

thedesiredtransformation(Figure3.15).Monetarypolicyprovidesboth

incomeeffectandawealtheffect.Overthemediumtolongterm,greater

wealth augmenting effects ofmonetary policymay begin to take effect,

raisingthegrowthoutlook.

Sources:CEIC;MOF;MizuhoBankSingaporeTreasuryDivision

Figure3.15

64

4.DiscussiononMacro‐EconomicOutlookforSingapore

andImplicationsforPolicy

Participantsoftheroundtablenotedtheincreasingrisksofdeflationand

raisedquestionsabout themonetarypolicyresponse.The issueofwage

pressureswasalsodiscussed,aswellasreformoftheeducationsystemto

support the transition to an economy driven by innovation and

productivity.

4.1DeflationaryEconomicConditions

Participants were bearish on the growth outlook and discussed the

worsening outlook for the domestic economy, the prospect of deflation,

andthepossibilityofahardlanding.MsDeyiTannotedthatfundamental

demandforpropertybasedonpopulationgrowthoverthenextfewyears

was projected to be 25% of upcoming supply. This demand supply

mismatchwould be amajor drag on theCPI, as property formed about

20–23%oftheCPIbasket.

A participant noted that the past few years had seen a slow growth

trajectory characterised by weak demand and high leverage, but jobs

creation had slowed very dramatically, with 20,000 jobs created in the

firstthreequartersof2015,comparedto90,000jobsinthesameperiod

of thepreceding year,while the residentunemployment ratehad risen.

Thiswascompoundedbythefeedbackloopofrisingunemploymentand

the domestic debt deleveraging cycle, with the potential for a more

DISCUSSIONONMACRO‐ECONOMICOUTLOOKFORSINGAPOREANDIMPLICATIONSFORPOLICY

65

dramatic vicious cycle to develop clearly building up, given a rising

interestrateenvironment.

Inaddition,itwaspointedoutthatbasedongroundobservationsoftrade

and human capital flows through port activity, airports and ferry

terminals, and looking at orders on the technological front, as well as

receivabledaysandbuildingactivities,consumerspendingandaggregate

demanddidnotseemtopickupdespiteanascentrecoveryindeveloped

markets,heraldingtoughtimesahead.

However, itwas argued that the problemwas not unique to Singapore,

andthatitrelatedtothefactthatalargerpartofemergingmarketswasin

adeleveragingphase;andinsofarastheglobaltradeflowhadbeendriven

byglobal emergingmarket growthwithSingaporebeing at theheartof

globaltrade,itwastobeexpectedthattheexternaldemandpicturewas

slowingdown.

Another participant added that price deflation for industrial goodswas

becoming more evident as China exported its surplus capacity. For

example, the world was seeing an accelerating pace of steel price

deflationbecausethebehaviouralchangeintheChinesesidewastooffer

very sharp discounts to foreign buyers due to oversupply, overspilling

China’sdeflationtoothercountries.

THETWENTY‐SECONDSINGAPOREECONOMICROUNDTABLE

66

ThishadfilteredthroughasSMEsentimentbasedonthelatestSingapore

BusinessFederationsurveywasatthelowestinthelastthreeyears,and

thatmorethanhalfwerefacingstagnantgrowthornegativegrowth.

Thisraisedrisksofahardlanding.However,aparticipantsaidthatahard

landing in Singapore would require either of the following: a huge

negative external shock, or if the domestic economybuilds up somuch

leverage and imbalances that it collapses as growth slows down. The

prognosiswas for amild global recovery,while the latter scenariowas

unlikely to happen as long as domestic liquidity conditions remained

undercontrolbyMAS.

4.2MonetaryPolicyResponse

QuestionswereraisedaboutthepolicyresponsebytheMAStoreducethe

slope slightly in October 2015 while retaining the modest and gradual

appreciation of the S$NEER. A participant said that the current policy

effectively depreciated the Singapore Real Effective Exchange Rate

(REER) via internal depreciation, or deflation, and that this course had

two disadvantages: first, it may lengthen the deleveraging phase by

reducing nominal growth and raising servicing costs aswell as the real

costofdebt;andsecond,itleadstogreaterfinancialstabilityrisksdueto

higherinterestratesandassetdeflation.

The participant also noted that a bigger uncertaintywas the change in

interaction between the exchange rate and the interest rate, where

historically,measuresbyMAStoslowtherateofappreciationalsoledto


67

some degree of domestic interest rates easing as well. However, this

relationship seemed to have reversed: in the current cycle, any hint of

currency depreciation causes a tightening in the domestic money

markets,leadingtohigherinterestrates.

Inaddition,undertheconditionsofslowinggrowth,deflationandrising

unemployment, gradual monetary policy may be self‐defeating by

encouragingmarketstoexpectfurtheractiontocome,whenalternatively,

thebetter thing todomightbe toboldlymove theS$NEERpolicyband

downwards to stabilise capital outflows.However, not everyone agreed

withthisview,withaparticipantpointingoutthatinterestratesarevery

much a function of exchange rate policy, and that the relationship

between interest rates and exchange rate had moved in a predictable

inversemanner. Inaddition,havinganexplicitandstableexchangerate

policy helps maintain currency stability. For instance, when the PBOC

announcedanexchangerateregimechange inAugust2015,speculation

abouta10–15%competitivedevaluationbecamewidespread,leadingto

severe capital outflows that adversely impacted financial stability. In

reply,thefirstparticipantnotedthatunlikeChina,Singaporehasanopen

and highly credible policy framework, although he accepted the

uncertaintyabouthoweffectivelySingaporecouldeasetherealexchange

rateunderthecurrentregime.

A few points were made to explain the monetary policy stance. First,

giventhatglobalgrowthandinflationhadbeenbelowtrendsince2008,

central banks, including Singapore, had adopted accommodative


68

monetarypoliciesforanextendedperiod,andthecurrentstancewasto

maintainitonthelooseend.Second,barringone‐offfiscalmeasures,core

inflation was creeping up, while the estimate of the output gap in the

economy was about zero, which meant the economy was growing at

roughlyaboutthesamepaceasthepotential,intermsoflevels.Basedon

these two fronts, the conclusion was that there was no immediate

urgency to do further on monetary policy. Third, the labour market

remained fairly tight,withvacancy rates for some industriesquitehigh,

and with firms in various industries indicating that they were facing

difficulty securing sufficient manpower. Fourth, since Singapore was a

small economy, its exports were mainly determined by income effects

ratherthanpriceeffects,andexchangerateswerelimitedinthisregard.

Finally, monetary policy was only one of several policy tools, and

economic strategies had to be multi‐pronged, incorporating monetary

policy, fiscalpolicy,supply‐sideadjustmentsandothermeasurestohelp

theeconomyadjustandundergothenecessaryrestructuring.Hence,the

burdenofadjustmentshouldnotfallonexchangeratesalone.

4.3ViewsonWagePressures

Participants had mixed views about the prospects for higher wages in

Singapore going forward. One participant noted that higher wages

required growth, which came from demographics, productivity or

leverage. The demographics and leverage components had been

exhausted,andhenceanywagegainsweresustainableonly ifdrivenby

productivity gains. Another participant reiterated the point that labour

market tightness did not automatically lead to wage inflation as it


69

depended on structural features of the labour market. Japan was an

examplewhere labour laws against firing employees lead to depressed

wages.

However,otherparticipantsnotedthatinthelongrunthePhillipscurve

would re‐assert itself and a tight labour market would lead to rising

wages. Thiswas in linewith the underlying concerndriving the overall

strategy of the government to shift the focus away from cheap labour

inputsintomoreproductivecapitalinputs.However,thismayonlycome

after a deep restructuring in the corporate sector. In this context, a

participant noted that initiatives such as the SkillsFuture movement

constituted a robust continuing education strategy to mitigate labour

marketfrictionsandmanagedisruptionsinthelabourmarkets.

4.4AvailabilityofTimelyInformationontheEconomy

Participants highlighted data gaps in several areas of the economy, and

discussedtheneedforindicatorstoimprovemonitoringandforecasting,

aswell as to support amore targeted policy approach. One participant

noted the lack of timely indicators on the services sector in Singapore,

makingithardtogaugetheimpactsofexternaldevelopmentsonthispart

of the economy, while another participant said that MTI releases

compositeindicatorsonaquarterly,asopposedtoamonthlybasiswhich

madeitdifficulttogetasenseofwheretheeconomywasheading.

Otherparticipantsaddedthat fine‐grainedsectoraldatawasrequiredto

drill down into the structural shifts in Singapore in terms of


70

retrenchment, structural unemployment and corporate relocation

amongstothers.CreditconditionsfacedbySMEsalsoneedtobestudied

moreclosely.Thefindingsmaybeusedtodevelopamoretargetedpolicy

approachbythegovernment,asthegovernmentmovesawayfrombroad

supportschemesliketheProductivityInnovationCredit(PIC)schemein

assistingthedevelopmentoftheprivatesector.

4.5EducationasaKeyComponentofStructuralReform

As participants discussed the rebalancing from the FDI‐import growth

modelandthedevelopmentofSingapore‐basedcompanies,aswellasthe

transitionfromaninputdriventoaninnovationdriveneconomy,atheme

that came into playwas the role of the education system. In particular,

participants called for the need for further reform to the education

systemtohelpspurcreativityandincentiviserisk‐taking.

SomeparticipantsnotedthatthefixationontestsandexamsinSingapore

seem to cause students to be overly concerned with the “one right

answer”, as opposed to developing an understanding of multiple

interpretations of problems. Finland on the other hand has had a

successfuleducationsystemthatreliesonminimalstandardisedtesting.

Inthissense,thisraisedquestionsabouttheneedforbalancebetweena

“traditional”and“progressive”educationmodelforSingapore.

However,otherparticipantsrepliedthattheeconomicandpolicycontext

oftheFinlandeducationsystemdifferedgreatlyfromSingapore.First,in

Finland, the healthy balance between the technical and academic


71

institutions,withhightake‐upratesforvocationaleducation,aroseoutof

a higher education system under which generous living subsidies

incentiviseduniversitystudentstodelaygraduation,thuscloggingupthe

higher education system and increasing the competition for university

places. Second, high taxation led to greater equalisation of income

between technical andprofessional fields, thus increasing the attraction

of technical education. These circumstances were markedly different

fromSingapore.

Nevertheless,aparticipantnotedthatchanges in teachingandapproach

to educationwere currently underway in both the education system of

schools and continuing education.Thesewerebeginning to show in the

PISAtestscores forthepast fiveyears,wherebySingapore’scomponent

scoresonhow individualsprocessandcreativelyassimilate information

hadseenimprovement

However, itwasnotedthateducationmightnotbe themainobstacle to

restructuringtheeconomyasSingaporeremainsopento foreignhuman

capital flows. Instead, understanding and taking advantage of broader

externaldevelopments,suchasstructuralchangesinglobalsupplychains

andtheemergenceofnewtechnologies,willbecrucialforfuturegrowth.

72

5.Singapore’sEconomyBeyond50

DrAlexMourmouras

DivisionChiefAsiaandPacificDepartmentInternationalMonetaryFund

5.1HistoricalBackground

Singaporehasmadearemarkable transition fromthirdworld to first in

50years,inthecity‐statewithfewnaturalresources.GrowthrateinGDP

over a 50‐year period is an impressive 7.6%, through accumulation of

humancapitalandphysicalcapitalandgrowthintotalfactorproductivity.

Three features stand out: first, Singapore’s growth rate is characterised

by the large variability and higher standard deviation than a typical

closed economy. The openness of Singapore’s economy has been its

hallmark,withitsstrategiclocationandpositioningashuboflogisticsand

trade in the centre of ASEAN. Second, Singapore has relied heavily on

inputs todrivegrowth throughmostof itshistory, and foreignworkers

andimmigrationhavedrivengrowthinthepastyears.Withthatgrowth,

profits for the corporate and business sector have been steady. Third,

alongsidetheglobalphenomenon,istheincreaseininequalityovertime.

In themidstof skills‐biased technical changeand thede‐materialisation

of production, worker skills have not gone up, while immigration of

foreignworkershaveputdownwardpressureonnon‐skilledwages.

POLICYINNOVATIONSINSINGAPORE

73

“A Contribution to the Empirics of Economic Growth” by N. Gregory

Mankiw, David Romer and David N. Weil, published in the Quarterly

JournalofEconomics in1992,discussedtherealconvergencetoasteady

state fromtheaccumulationofphysicalandhumancapital,and this isa

good way to think about the kind of structural transition that is

happeninginSingapore’seconomy.Therateofgrowthofunskilledlabour

isbeingdialleddownandthis iscausingprofoundchangesinSingapore

with a growing emphasis on additional capital and additional

technologicalchangeasthefuturedriversofgrowthintheeconomy.

Thereisalsothepoliticaleconomyandtheshifttoanewequilibriumwith

regard to immigration, based on themedian voter in Singapore having

expressed his preference for lower immigration rates. In his paper

published in theAmericanEconomicReview,WolfgangMeyer examined

the median voter who is endowed with both capital and labour. The

capital‐labour ratioof each individual isdeterminedbyhis endowment,

whichinturndetermineswhethereachindividualbenefitsorlosesfrom

more raw labour flowing into the economy. For example, for citizen‐

agents who have higher‐than‐average capital‐to‐labour ratios, having

moreimmigrationbenefitsthembecausethiswouldpushuptherelative

rewardofcapital.Ontheotherhand,acitizen‐agentendowedwithvery

little capital would have to competemorewith foreignworkers, hence

draggingwagesdown.Themedianvoter,basedonhisendowedcapital‐

to‐labourratio,woulddecidehowmuchforeignlabourintothecountryis

acceptable. In Singapore’s case, the endowment of the median voter of

todaycallsfortighterimmigrationpolicy.


74

5.2ProspectsforFutureGrowth

InIMF’sStaffReport,thereasonablepotentialgrowthrateofSingapore’s

economy is about 3%. This takes into account a likely change in the

labour force structure, which is a function of fertility, labour force

participation, employment rates and foreign worker inflow — about

20,000–40,000 each year. However, as a high‐income nation, is 3% an

overlyambitioustarget?

Growth of 1% would be derived from total factor productivity (TFP)

growth,whichwhencompared to the2%averageTFPgrowthachieved

bytheUSforthepast200years,doesnotappeartobeoverlyambitious.

However,asseeninrecenttimes,thegrowthpessimistsandthegrowth

optimists are engaged in adebateonwhether theworldhas runout of

transformativeinnovationsagainsttheviewthatthereisnodiminishing

return to innovation and technological change. Either way, 1% for a

countryattheproductionpossibilityfrontierintoday’sworldseemstobe

areasonabletarget.

Another 1% of growth would likely be achieved through capital

accumulation and savings into fixed investment and physical capital.

Labourinputwillcontributetheremaining1%ofgrowthinthenextfive

years via two components: first, the increase in raw labour through

immigrationandforeignworkers;andsecond,theimprovementoflabour


75

inputquality.Whilethesefiguresarenotlarge,theyarenotinsignificant

eitherforacountryalreadywithoneofthehighestnationalincomes.

5.3ChallengesinSingaporeandtheGlobalEconomy

There are less sanguine developments in the global economy. The IMF

frequently discusses about the multiple transitions that the world is

undergoing.OneparticulartransitionistherebalancingofChina’sgrowth

model from exports and real estate investment to consumption and

services. The other transition is in commodity prices, now that the

supercycle driven in part by China for the past 15 years is over. The

declineinoilandenergycommoditiespricesisheretostay.Atthesame

time, there is also stress in emergingmarkets stemming from leverage

issues,compoundedbytheimpendinginterestratehikebytheUSFed—

which in itself is appropriate as the US economy is close to full

employment.Anotherglobaldevelopmentisthereconfigurationofsupply

chainandthereshoringofmanufacturingactivitiesbacktocountriessuch

as the US, which affects trade growth in the post‐global financial crisis

world.

As a highly open economy, Singapore is invariably affectedly by these

external forces. Coupled with domestic constraints such as ageing

demographics and socio‐political considerations, these factors place a

dragonfuturegrowth.

5.4DevelopingtheSmartState


76

Notwithstanding the above challenges, Singapore has several strengths

thatplace it in apositiveposition for futuredevelopment. It has strong

endowments of human capital, highly developed institutions such as

property rights, and first‐class infrastructure. In his discussion on the

smart state, economistPhillippeAghion, lookedat the corepillarsof an

innovation‐based economy, namely, competition, education, labour

marketflexibility,finance,democracyandcountercyclicalmacroeconomic

policy.Basedonthesedrivingfactors,Singaporemayhaveepitomisedthe

smartstateinitsattempttoovercomethechallengesfacingit.

Singapore’sresponsechoicetoitschallengesareshapedbythefactthatit

isattheproductionpossibilityfrontier,thatthegrowthstrategyhastogo

beyondimitating,adaptingandadoptingforeigntechnology,callingfora

specificsetofeducationandindustrialpolicies.

In addition, Aghion also identified that in order for a country to be a

SmartState,itneedstobeaninvestor,insureraswellasredistributor.

With regard to redistribution, while Singapore espouses a culture of

personal responsibility as the primary social principle, a look at the

budget documents and government policies would inform that some

allowanceismadefortheprovisionofwelfaresupport.Moreimportantly,

redistribution has to be balanced with competition, where the latter is

usedtosortoutwinnersfromlosersbutwiththepresenceofanadequate

social safety net to support the losers. In Singapore’s case, the

Schumpeterian growthmodel is of relevance as the economy is already


77

near the production possibility frontier. The country has to embrace a

culture of positive competition that fosters innovation and incentivises

investments in research and development with the understanding that

this is a dynamic process inwhich old ideas, blueprints, processes and

goods could be jettisoned formore innovative, productive and relevant

ones.

How can Singapore be a strategic investor? While Singapore should

continue to emphasise fiscal prudence and discipline, it should not

hesitate togivesupport to investments in theareasofhealth,education

andSMEsas longas theydonotcompromiseoncompetition.Countries

such as Taiwan and South Korea have shown that industrial policy can

workifitisinfusedwiththeelementofcompetition.Anotherareatolook

at is universities, where reforms to governance structure to encourage

more competition in securing grants andpublic investments could spur

greaterinnovativeactivities.

Whatcanthestatedoasan insurer?Duringtimesof lowanimalspirits,

thestateshouldinterveneinasmartwayifithasthemeanstoalleviate

the troughof thebusinesscycle.This involvesanactivepursuitof fiscal

andmonetarypoliciesnot just forshort‐termstabilitybutalso for long‐

term growth objectives. Such policy measures should target SME

development,educationreformsandlabourmarketrestructuring.

Support toeducation,particularlygraduateeducation, isalso important.

For economies in the earlier phases of development, elementary and


78

college education impact growthpotential significantly.As theeconomy

continues to develop and approaches the production frontier, graduate

education becomes increasingly important for generating the type of

productive innovation through first class research that canhelp sustain

growth. Crucially important in this process are the linkages between

tertiary institutions and industry, which is needed for the

commercialisationoffundamentalresearchoutcomes.Israel,forexample,

hasdoneverywellinthisrespect.

5.5FutureGrowthOpportunities

DespitetheslowdowninChina,thesheersizeofitseconomymeansthat

it is still going to contribute significantly to global growth. Moreover,

many of the advanced economies are struggling to sustain growth, and

hencethenextmajorgrowthdriverintheglobaleconomyisexpectedto

come from emerging markets, which include ASEAN. Notwithstanding,

growthwouldnotoccurautomatically,asstructuralreformsareneeded

tounleash thegrowthpotentialof thismarkets.Butakey challenge for

many places, ASEAN included, is pushing through structural reforms

because theygo into theheartof thepolitical, the economy, thehistory

andsometimeseventhecustomsofthecountry.

Puttingthatconstraintaside,Singaporeiswellplacedintheregionwhere

thepromiseofgrowthlies.Thecloseproximitytoneighbouringemerging

marketsandfurthereconomic integrationthroughtheASEANEconomic

Community (AEC) provide low‐hanging economic fruits. High‐quality

multilateral trade agreements, including the yet to be ratified Trans‐


79

Pacific Partnership (TPP), further present great opportunities for the

Singapore economy and businesses to benefit from the region’s rapid

development.

80

6.PresentationbyDiscussant

AssociateProfessorTohMunHengDepartmentofStrategyandPolicy

NUSBusinessSchoolNationalUniversityofSingapore

6.1RestructuringDrives:PastandPresent

Singapore is evolving from an input‐driven, investment‐driven growth

modeltoaproductivity‐drivengrowthmodel.However,therestructuring

process aimed at raising productivity needs to be carefully calibrated

givenseveralfeaturesofthepresenteconomy.

First, as Singapore shifts from a developing economy to a developed

economy, it moves towards the production possibility frontier, where

opportunitiestogrowthroughimitationofothercountriesareexhausted.

Asitisverydifficulttoexpandthefrontier,therestructuringprocesshas

to bemanaged in away to ensure that enough companies remain here

ratherthanrelocateoverseas,andthattheyareabletocopewiththenew

regulations and plans that the government has in order to uplift

productivity.Hence, it is important to have the right data and statistics

available to monitor and understand the situation on the ground in a

timelymanner.

Second,thepresentdrivetoincreaseproductivityisnotentirelydifferent

from the first industrialisation drive of 1980s in Singapore where

PRESENTATIONBYDISCUSSANT:TRANSPORTDEMANDMANAGEMENT

81

companieswereencouragedtobemorecapitalandtechnology‐intensive.

Themaindifferenceisthatthecurrentproductivitydrivehastocopewith

asignificantconstraintonmanpowerduetogreyingdemographicsanda

slowdowninforeignworkforcegrowththathavebeenmanagedthrough

the tightening of employment quotas and rise in foreign worker levies

since2012.

6.2LowSubstitutabilityofForeignWorkers

The success of the productivity drive hinges on the substitutability

between foreign labour and the local labour, and between labour and

automation or mechanisation. If the space for substitution is low, the

quality of outcomeswill be low andmajor changeswill notmaterialise

despite the amount of effort and resources committed to it through

support schemes like the Productivity Innovation Credit or Capability

DevelopmentGrant.LimitedpreliminarydatafromaproductivitystudyI

have conducted indicates that substitutability between local labour and

foreign labour is relativelyweak. Based on the findings, there a lack of

evidence to support the view that productivity would increase if the

foreignworkforceiscappedorreduced.

The experience of the productivity drive in 1980s offers important

lessons.Duringthatperiod,wageswereraisedby20%over threeyears

under the guidance of the NationalWage Council with the intention of

raising productivity by incentivising firms to invest more in capital.

However,theproductivitydrivewasnotverysuccessful.Insteadofrising

productivity,itledtoaprofitsqueeze—mirroringtheprofitcompression


82

currentlyseeninMsDeyiTan’spresentation,andasubsequentexodusof

companies during the 1985 recession. If notmanagedwell, the current

productivitycampaigncouldleadtosimilarunintendedconsequences.

6.3FactorsthatInhibitProductivityGains

The push tomake Singapore’s companies adopt new technology and to

becomemore capital‐intensive has fallen into a lethargy due to various

factors that include limited scale, overcapacity, overproduction and to

someextentablockinmindset.

While new technologies to improve productivity such as self‐service

technology in supermarkets, centralised kitchen services, and delivery

dronesareavailable, theiradoptionmaynotbe thatpervasive,andmay

be feasibleonly fora few frontline companies thathave theoperational

capabilities and business scale to absorb them. Moreover, ground

feedbacksuggeststhattherearemanybusinessideasbutmanyfirmsdo

nothavethescaletoimplementthem,evenwiththehelpofgovernment

funding.

Second,somelocalfirmsseemtobeunabletodealwithnewchallenges.

Caseinpointishowlocalprivatetransportincumbentstriedtopushthe

government to adopt certain regulation and rules against new and

disruptiveprivatehireservicesjustasUberandGrabTaxi.Thisindicatesa

hindrance,orperhapsmentalblockintermsofreactingtonewproblems.

Furthermore, firms seem to lack the know‐how to exploit new

technologies for their businesses. For instance, e‐commerce presents a

PRESENTATIONBYDISCUSSANT:TRANSPORTDEMANDMANAGEMENT

83

channel for retail businesses to accessnewmarkets, but fewbrick‐and‐

mortarfirmshavecapitalisedonthisopportunity.Instead,manyofthem

are increasingly challenged by new online businesses,which are taking

awaytheirmarketshare.

Incontrast,thegovernmenthasrecognisedthatthenewgrowthareasfor

the economy lie in ICT‐basedbusinesses, and efforts are beingmade to

transform the country into a Smart Nation through investments in ICT

infrastructureandindustryinitiatives.However,thisriskscreatingabig

gapinthebusinesstransactionside,withlotsofsupply‐sidecapacitybut

limitedabsorptioncapabilitytomatchup.Returningtotheexampleofthe

localretailindustry,thelowmarketpenetrationrateofe‐servicessuchas

e‐commerce inSingaporemeans thate‐commercerelated infrastructure

suchasfibre‐opticcommunicationandadvancedlogisticserviceswillnot

beoptimallyutilised.

Third, it seems that the world is facing a general problem of

overproduction,withChinaforexampleproducingenoughshirtstodress

theworld two timesover, hence exportingdeflationby selling goods at

vastdiscounts.This supply‐sideproblemand theattendantdeflationary

effectsareunlikelytodissipateinthenearfuture.

In thiscontext, it is imperative to focusondeveloping the technicaland

businesscapabilitiesoflocalSMEstoensurequalitygrowthoverthenext

10years.

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7.DiscussiononSingapore’sEconomyBeyond50

Participants discussed the global growth outlook in light of the recent

trends in the global economy, including the definancialisation of the

global economy, and the ongoing debate between secular stagnation

theorists and techno‐optimists. Matters relating to productivity,

inequalityandimmigrationwerealsoraisedanddiscussedtogether.

8.1GlobalandLocalGrowthDrivers

A participant raised the issue of tightening regulation in the financial

sector in terms of capital requirements, anti‐money laundering and tax

transparency, and the possible negative impact on Singapore given its

statusasafinancialhubintheregion.Otherparticipantsquestionedthe

prospectoflowgrowthduetodeleveragingintheshorttermandsecular

stagnationoverthelongerrun.

Aparticipantsaidthattheworldcurrentlyfacedtheproblemofhavingto

copewithahighvolumeofprivateandpublicdebt.Theprocessofgetting

national accounts in order would depend on the political economy of

individualcountries. In theUS,raisingtaxesandreducing fiscal transfer

payments was unpopular, and after seven years of deleveraging the

median voter still had an incentive to see interest rates remain low. If

inflation remains subdued, “financial repression” as noted by Carmen

Reinhardt of Harvard University could be a solution, albeit a slow one

DISCUSSIONONPUBLICGOODSDELIVERYINSINGAPORE

85

withgrowthremaininglowforaprolongedperiod.“Financialrepression”

may include directed lending to government by captive domestic

audiences (such as pension funds), explicit or implicit caps on interest

rates, regulation of cross‐border capital movements, and generally, a

tighterconnectionbetweengovernmentandbanks2.

Over the longer term, policy upgrades and structural reforms were

necessarytoraisepotentialgrowth.Forexample,studieshadshownthat

the national border, as an obstacle to trade, was equivalent to 5,000

kilometres in transportation costs, and freer trade would present

opportunities for growth. With regard to secular stagnation, the view

offeredwasthattherewerenodiminishingreturnstotechnology,which

iftruewouldprovetechno‐optimistsright.

WithregardtoSingapore,aparticipantdeclaredthatthe IMFprojection

of 1% TFP growth going forward was based on historical data and

unadjustedforvaryingfactorutilisationoverbusinesscycles.Inaddition,

henotedthatbothlegalandtechnologicalbarrierstotradeandservices

weredeclining,which implied thatwhite‐collarworkerswereno longer

shieldedfrominternationalcompetition.Thiscouldbeanotherelementof

disruptiontoexistingeconomicstructures.

However,inSingapore’scase,itstoodtogainfromtheresultantincrease

inliberalisationandvolumeofservicetrade,givenitshighlevelofhuman

2See“TheLiquidationofGovernmentDebt”byCarmenM.ReinhartandM.BelenSbrancia,NBERWorkingPaperSeries,2011,abstract.


86

capital, deep financial pockets and strategic location within South‐East

Asia. Inaddition,thedematerialisationofproductioncouldbeaboonto

Singapore,asproductionnowrequiredlessphysicalspace.Thepotential

growth of Singapore would then be conditional on its willingness and

strategies to expand its human capital through immigration and the

improvementofregionalcooperationandconnectivity.

8.2ProductivityinSingapore

InresponsetoconcernsonproductivityraisedbyProf.TohMunHeng,a

participantnotedthatSingaporewasnotyetattheproductionpossibility

frontierforanumberofsectorssuchasinconstructionandretail,which

atpresentareoverlyreliantonforeignworkers.Inaddition,technological

adoption in these sectors was generally lagging behind developed

countries,whichmeant that therewas significant room forproductivity

improvements.Theparticipantalsonotedthatthesubstitutabilityoflocal

andforeignlabourwoulddependontheabilityofcompaniestoleverage

ontechnologytomaketraditionallyblue‐collar jobsmoreattractiveand

betterpaid.

In a related note, participants identified several obstacles to raising

productivity. It was noted that Singapore’s performance as an R&D

location was lacking; an INSEAD study showed that the innovation

efficiencyof Singaporewas lowcompared to other countries, andother

studiesshowedthatwhileSingaporewasgoodinmobilisingresourcesfor

innovation, it had fared poorly in translating inputs into outputs. In

addition,witheconomiesacrosstheworldpredominatelydrivenbyfirms


87

thatcouldtranslateglobalinnovationsintotangibleeconomicoutcomes,

this raised questions about the fundamentalweaknesses of Singapore’s

local firms, especially if, as projected in the presentations at the

roundtable,MNCsweregoingtobelessevidentinthefutureeconomy.

Aparticipantsaidthatitwastheabilitytobecompetitive,definedasthe

abilitytosellone’sproductandcommandmarketshare,thatprovidedthe

revenueand resources to firmsneeded for innovationandproductivity.

Withouttheskillsettobecomecompetitiveandtoaccesslargermarkets,

long‐termproductivity gainswere unlikely tomaterialise. Adding on, it

wassuggestedthatSingaporeshouldfindwaystoleverageonitsbaseof

large companies that were plugged into global networks to form new

linkagesandplatformswithsmallcompaniesforthemtogrow.

Another participant felt that Singaporeans faced an aspiration deficit,

lackingthedrive,ambitionandmotivationtothinkbeyondwhattheyhad

been taught. This could be due to the fact that Singaporeans felt

pigeonholedaccordingtotheirlevelandkindofeducation.Furthermore,

if students felt compartmentalised based on their achievements within

the education system, it may foster greater risk‐aversion that retards

innovationandproductivity.

It was stated that old business models based on low wages and rising

propertypricesshouldgivewaytohightechstart‐ups,whichwouldform

the new growth engine. However, another participant argued that

venturecapitaliststendtogotomarketswithhighpotentialforunicorns


88

(start‐upfirmsvaluationsexceeding1billionUSD)duetothehighrisksof

start‐upinvesting,andasasmallcountrywithasmallmarketSingapore

was not a natural candidate for these venture capitalists. Another

participantsaidthatwhilethegovernmenthadahugetrancheofmoney

earmarked under the Research & Innovation Enterprise plan, the

questionwaswhereandhowtodirectthosefundsefficientlytogenerate

substantialeconomicvalue.

8.3AddressingInequality

Participantsconsideredthestructuraldevelopmentsintheeconomythat

was affecting inequality. Over the past 50 years, inequality fell due to

strong growth, but with slower growth expected going forward,

inequalityinSingaporecouldcreepbackup.Oneoptimisticviewoffered

attheroundtablewasthatSingaporemighttransittoasmallerbutmore

productive economy for both the manufacturing sector and services

sector.ThiswouldincreasethewageshareofGDPfrom40%currentlyto

about 50%, similar to Hong Kong’s economy, and would create a

narrowingofinequalityeffect.However,Prof.Tohsaidthattherelatively

lowwageshareofincomeinSingaporewascharacteristicofaneconomy

thathadtoremainattractivetoforeigninvestmentthroughlowerwages.

Unless local SMEs become a major part of the economy as in the

developed countries, a 60–70% wage share of GDP was unlikely to

materialise.

Anotherparticipantaddedthattheobjectivetoreduceintergenerational

inequalities seemed to have been the thrust of several budgetary


89

measures introduced recent years. Singapore had the benefit of ample

fiscal space todo it in ameasuredway, and thepoliciesbodedwell for

Singapore’s society.On the internationalmonetary front, it alsohad the

benefit of reducing an excessive current account surplus, as fiscal

demands from these welfare measures would drive the surplus down.

With regard to ensuring equality of opportunity, Singapore had

undeniablydoneabetterjobthanmanyothercountries.

8.4IssueofImmigration

On immigration policy, several participants emphasised the need to

maintain flexibility, to adapt and adjust the limits of foreign labour and

other regulations in a pragmaticway. In addition, keeping immigration

open was in the interest of Singapore, as the economic success

experienced by the US lay in its ability to attract talented immigrants.

Looking at the great US firms that were started by immigrants, it was

clearthattheybringgreatbenefitstheirhosteconomies.Besides,without

immigrationthelocallabourforceinSingaporewasexpectedtoshrinkin

the near future as a result of greying demographics. Hence, the policy

emphasisshouldbeonassimilatingimmigrantsmoreeffectively.

Seenfromaglobalperspective,theinfluxofcheaplabourwaspotentially

awin‐winoutcome.Tighteningimmigrationpolicy,whilerationalisablein

terms of the domestic political economy, was not the global first‐best

outcome,especiallyashigher immigrationcould lead tobetterpotential

growthprojections.


90

8.5BalanceinPolicyMeasures

Theneed for a balance inpolicymeasureswasdiscussed.Aparticipant

said thatwhile regulations played an important role in ensuring safety

and fairness, they should be reviewed to ensure that they were not

impedingproductivitygrowth.Anotherparticipantaddedthatwhile the

government aimed to free up resources for more productive firms to

grow in the current restructuring drive, this had to be balanced with

letting themarkets functionby themselves, and giving every firm a fair

chance.Inotherwords,thegovernmentshouldnotover‐regulate,orstep

intoomuchtointerferewithmarketforces.

ParticipantsspokeabouttherolebankruptcylawsinSingaporeplayedin

disincentivisingentrepreneurshipandrisk‐taking.Aparticipantsaidthat

theharshpenaltiesofbankruptcyinSingaporeandsocialstigmaattached

toitmadeSingaporearisk‐aversesociety.Incontrast,bankruptcylawsin

othercountriesliketheUSwerelessharsh,andfailurewasseenasarite

ofpassage forentrepreneurs in innovationdrivenplaces like theSilicon

Valley.Inreply,itwasnotedthatbankruptcylawswerechanging,andfor

the first time since May 2015, Singapore had introduced a structured

bankruptcyprocesswithmechanismstoensurealessonerousexitfrom

bankruptcy.

Participants also noted that well‐coordinated multifaceted policy

interventionswereneededacrosstheentirespectrumofpolicy inorder

topositionSingaporeforfuturegrowth.However,theshort‐termlimitsof

policyactionswereacknowledgedespeciallyinthepresenceofconflicting


91

social norms and local culture. For instance, even with a reformed

bankruptcylaw,entrepreneurshipandriskaversionwouldstillpersistif

the social stigma of failure remains and traditional forms of career

successcontinuetobeaspiredbythepopulation.

92

Conclusions

The 24th Singapore Economic Roundtable examined how external and

domesticconstraintsaffectthefuturegrowthofSingapore.Whilechanges

intheglobalsupplychainproductionandinternationaltradeorderplace

a drag on the short‐term growth prospect of the country, Singapore is

well placed to benefit from the new emerging economic and social

structures, with its emphasis on building a Smart Nation based on a

knowledge economy. However social issues such as immigration and

inequalitywouldrequirethegovernmenttostayvigilantandbeproactive

in identifyingandaddressing theconcernsof thecitizens, inaddition to

pursuinggrowthandproductivityimprovements.

1.Macro‐EconomicOutlookandImplicationsforPolicy

Adaptingtochangesinglobaltradedynamics

The immediate growth outlook for the region around Singapore has

dimmed. Export growth has shifted downwards due to a general

slowdowninglobaltrade.Inaddition,asChinacontinuestomoveupthe

technologicalladder,theverticalintegrationofitsproductionprocesswill

intensify.Asaresult,itsdependenceonintermediategoodsimportsfrom

the ASEAN region will decrease accordingly. Singapore’s economic

activity, due to the weak external backdrop, has been lacklustre in the

past few months. Added to that is the weak positive spillover from a

consumptionledrecoveryintheUS,astheimportofgoodsandservices

remainsweak.

CONCLUSIONS

93

However,Singaporeisadaptingtotheon‐goingchangesofglobalsupply

chains.AlthoughChina’srisingcapabilitiesintheIT‐intermediatedgoods

spacehasledtosomeslowdowninrelatedexportsfromtheAsiaregion,

the impactof thisdevelopmentcouldbemitigatedby thestrengthening

trade linkages of emerging nodes in regional supply chains. Singapore’s

exports to CMLV economies are main sources of support. In the

electronics space, Singapore’s semi‐conductors have benefited from a

surge in demand from the region, especially in Vietnam tech‐trade.

Deeper economic integration among ASEAN countries will herald new

opportunitiesforSingapore’sexporters.

Singapore’s next phase of economic development drive will be

characterisedbyaknowledge‐basedeconomy,whereproductivitygains

will help overcome supply side constraints. Research and development

(R&D) capabilities are important in a knowledge‐based economy, and

Singapore’sgovernmenthaspledgedtoinvestheavilyinit,bothinterms

of capital and manpower. Government initiatives such as the Smart

Nation programme will drive the corporate sector to adopt more ICT

solutions. There is also an emphasis on increasing intellectual property

(IP) assets, which is prevalent among major US IT firms. Given the

importance of R&D, ICT and IP, ensuring a competent labour force of

relevanttechnicalexpertiseinthesefrontierindustrieswillbecriticalfor

growth.

Singapore’s3‐Dproblemofdebt,demographicsanddeflation


94

Both household debt and corporate debt ratio in Singapore are high,

contributed by the openness of Singapore’s capital account in a loose

globalcreditenvironment,whichdroverapidcreditexpansioninboththe

householdandcorporatesectors.Whilehighleveragecanbesustainedas

long as macroeconomic conditions remain supportive, it increases the

vulnerability of an economy from interest rate changes and declining

assetprice,bothofwhicharehappeninginSingapore.Thisvulnerability

is compounded by demographic trends of an ageing population and

tighterimmigrationpolicythatlimitsworkforcegrowth.

Deleveragingintheeconomy,whichisrequiredtopreparetheeconomy

for the next cycle of growth, typically happens through income growth

andnotdebtdecline.ThiswastheexperienceofSingaporeaftertheAsian

FinancialCrisis,wherebythecountrypareddownitsdebt‐to‐GDPlevelby

boosting its income. However, the current weak external backdrop of

secular stagnation coupled with impending interest rate increases will

limiteconomicgrowth,andelongatethewholeadjustmentprocess.With

inflationexpectedtotrendflatorevennegative,theoptionofshavingoff

debt through inflation is not available either. Nonetheless, the risk of a

cathartic boom bust cycle is low, given that the risk of global external

shocksrequiredforittomaterialiseisimprobable.

The macro‐economic strategy for Singapore to drive economic

development is to boost productivity.However,with demographics and

productivity appearing to correlate — labour productivity tends to

decline with age — an ageing population in Singapore could depress

CONCLUSIONS

95

structural growth despite an intensifying productivity drive. Innovation

through technologycouldnonethelessoffersomesolutions toovercome

thischallenge.

Singapore could also look to the Nordic countries for some lessons.

Notwithstandingtheirsmallpopulations,highmedianage,highGDPper

capital, and lowerworkingagepopulationgrowth, theNordic countries

arestillabletoachievehighproductivitylevel.Educationcouldbeakey

factor driving this outcome. Finland’s education system, for example, is

highly rated and promotes creativity. Teaching in Finland is a highly

regardedprofession,andalargeamountofresourcesiscommittedtothe

national education system. The system focuses much more on

collaborationinsteadofcompetition,unlikeinSingapore.

Monetarypolicyspaceunderevolving labourmarketstructure

Headline unemployment rates appear to overstate labour market

tightness. Correspondingly, theworries about resultantwage pressures

mayhavebeenoverdone.Anecdotal evidencepaints adifferentpicture,

hinting at a weaker correlation between unemployment rate and wage

growth.

There is strong need to extend the focus on jobs beyond quantity to

quality as well. A skills mismatch in the labour market leading to

inefficienciesintermsofjobexpectationsmaynotbecapturedinheadline

employmentfigures,thusoverstatingthehealthofthejobmarket.When

examininglabourmarketconditions,theexactcontracttermsofjobshave


96

tobetakenintoaccounttoo.Lastly,asthecorrelationbetweenGDPand

jobvacancyappearstobeholdingupbetter,recentGDPgrowthweakness

couldsuggestthatjobvacancycouldbesetforadecline,eitherinquantity

orqualityterms.

This, togetherwithexternaleconomicheadwinds, raises thequestionof

thegrowthandinflationeffectsofmonetarypolicy.Singaporemayhave

moreroomformoresubduedexchangeratepolicyaslongasinflationis

keptunderwrap.Nonetheless,thetrade‐offbetweenshort‐terminterest

ratesandloosermonetarypolicyisnotable.Forexample,SORrateshave

recently been driven up by the expectations of Singapore dollar

depreciation, and on balance, diminished policy elasticity (in terms of

spurringdemand) couldbeused to argue formorepolicy cautiousness.

Riskemanating fromthebalancesheet isalso increasingly factored into

monetarypolicydecisions.Hence, structural reforms to lift productivity

and the fiscal cushion Singapore enjoys are critical complements to

monetarypolicyaccommodation

Keepingcheckontheeconomy’shealth

There was some concern over the lack of public data to measure the

healthofSingapore’seconomy,especiallyinviewthattheeconomycould

beat tippingpoint. Itwaspointedout that the few that existmightnot

even be reported on a timely basis. For example, the Singapore’s

Composite Leading Index is often released a few months late, which

renderstheindicatorineffective.However,otherparticipantsweremore

sanguine, noting that several predictive indicators exist, although they

CONCLUSIONS

97

alsoacknowledgedthattheseindicatorsmightnotbesufficientlyreliable.

One suggestionwas to combineground feedbackandobservationswith

quantitativemetricstogetabettersenseofthestateoftheeconomy.

2.SpecialSession:Singapore’sEconomyBeyond50

Determinantsoffuturegrowth

Singapore has historically relied on the input of foreign labour for

development. The current structural transition is partly due to a

moderation of unskilled labour growth in Singapore, which affects the

compositionofthelabourforce.Inaddition,theopennessoftheeconomy

contributes to the volatility of growth. Being an open economy,

developments in the global economy such as China’s structural reform

transitiontoconsumptionledeconomy,theendofthecommoditysuper

cycle,stressesinthefinancialmarketsofemergingeconomies,andslow

downoftradegrowthwillhaveatangibleimpactonSingapore.

Singapore has to respond to these challenges.However, as an economy

neartheproductionpossibilityfrontier,technologyimitationoradoption

cannot remain as a strategy for growth. Instead, the Schumpeterian

growth paradigm, undergirded by a culture of competition and

continuous innovation, is more appropriate for Singapore’s developed

economy. Investment in education, especially postgraduate research, is

key to support a vibrant research environment, which is required to

expandtheproductionpossiblyfrontier.


98

In addition, growth is expected to come increasingly from emerging

markets in the region.However, this growth is conditional on countries

successfullycarryingoutthenecessarystructuralreforms,whichrequire

both political will and technical expertise. Given its location within

ASEAN, Singapore can benefit economically by providing the technical

expertise to help countries in the region carry out the necessary

structuralreformstoachievegrowth.

In terms of specific growth drivers, itwas commented that the current

global environment of disruption,whereby services are becomingmore

tradableand tradebarriersarerapidlybeingdismantled,providedboth

economicopportunitiesandchallengesforSingapore.However,whilethe

world stands to benefit in the long run, this global phenomenonwould

render short‐ tomid‐termheadwindsaseconomies carryoutnecessary

structuralreformsthatcouldupendthecurrentorderinordertotransit

tonewparadigmsofgrowth.Whileitisdifficulttoidentifywithprecision

thenextbigdriverofgrowthanddemand,digitaltechnologyseemstobe

therightfrontierofdevelopmentforSingapore.

Singapore’sproductivitydrive

The substitutability of input resources has an impact on economic

restructuring. Low input substitutability could reduce the efficacy of

government grants and programmes to raise productivity. Preliminary

studiesappeartoshowthatthesubstitutabilityoflocallabourforforeign

labour is low. Similarly, the substitutability of capital for labour is low.

These findings have implications for the government’s push for

CONCLUSIONS

99

companies to embrace technology. It could indicate that technology

adoption isnotpervasiveamongcompanies,andthatcompaniescannot

adapt their business models quickly even when generous government

support is available. More importantly, it could suggest that local

companieslacktheabilitytothinkofsolutionsthemselvestosurvivenew

competitionandotherbusinesschallenges.

Nonetheless,itwasnotedthatSingaporeisstillawayfromtheproduction

possibilityfrontierforcertainsectorssuchastheconstructionsectorand

retail sector. These sectors can boost productivity easily by importing

new techniques and technology from other countries. For example, the

retail sector could raise its productivity by adopting self‐service

technologymorewidely.

Notwithstanding, as pointed out by a participant, the fact remains that

Singapore faces binding input constraints on both labour and capital

fronts.Hence, it is important toreinvent thecontentand imageofsome

jobstomakethemmoreattractiveasawholetoSingaporeans.Partofthe

approachistoleveragetechnologytoimprovethequalityofsuchjobs.If

successful,thiswouldhelpincreaseinputssubstitutability.

Another participant said that the old business profit model of low‐cost

labour and real estate price appreciation still seem to prevail in

Singapore.Hepredicted thatuntil the local corporatesector changes its

businessmodel,inroadsonproductivitywouldbelimited.Addingon,he

said that government policies should focus on drawing more


100

Singaporeans into the start‐up sector, which has been identified as a

source of future growth. At present, the high tech start‐up clusters in

Singapore such as Block 71 in Ayer Rajah consisted mostly of foreign

start‐ups.

Explainingcitizensentimentstowardimmigration

ThepoliticaleconomyinSingaporehasshiftedtoanewequilibriumsince

the last few years, resulting in a moderation of immigration. Citizen

sentiment towards immigrationcouldbeexplainedby theirendowment

sharesofcapitalandlabourresource.Citizenswithhighcapitalresource

relativetolabourresourcestendtobemoresupportiveofimmigrationas

itprovideshigherreturnoncapitalandviceversa.Themediumvoterin

Singaporetodayhasahighershareoflabourresource.Ifthecomposition

of resources changes in future, public sentiment towards immigration

mayevolvetoo,whichwouldhaveattendantimpactontheimperativesof

economicdevelopment.

101

Appendix1:ListofParticipants

ChairpersonMrManuBHASKARANAdjunctSeniorResearchFellowInstituteofPolicyStudiesSpeakersDrAlexMOURMOURASDivisionChiefAsiaandPacificDepartmentInternationalMonetaryFundMsDeyiTANExecutiveDirectorResearchMorganStanley

MsDeborahTANSeniorEconomistDomesticEconomyDivisionEconomicSurveillance&ForecastingDepartmentMonetaryAuthorityofSingapore

DiscussantsAssociateProfessorTOHMunHengDepartmentofStrategyandPolicyNUSBusinessSchoolNationalUniversityofSingapore

MrVishnuVARATHANSeniorEconomist&HeadEconomics,Markets&StrategySingaporeTreasuryDivisionMizuhoBankLtd

ParticipantsMrDesmondCHOONGAssociateEconomicStrategyUnitEconomicProgrammesDirectorateMinistryofFinanceMrCHUANGPeckMingSeniorCorrespondentTheBusinessTimesSingaporePressHoldingsLtd

MsDianaDEL‐ROSARIOEconomistResearchDeutscheBankAGMrRayFARRISManagingDirectorandHeadofMacroStrategyinAsiaCreditSuisseAG


102

MsRheaHERNANDOResearcherPolicySupportUnitAsia‐PacificEconomicCooperationMrTerenceHODirector(EconomicProgrammes)EconomicProgrammesDirectorateMinistryofFinanceMsAseesKAURBAJAJEconomistCentennialAsiaAdvisorsMrKITWeiZhengDirectorAsiaPacificEconomicandMarketAnalysisCitigroupGlobalMarketsAsiaLimitedMrJimmyKOHHeadofInvestorRelations&ResearchGlobalEconomics&MarketResearchUnitedOverseasBankGroupMrLAMKongHongDirectorSMESecretariatSingaporeBusinessFederationMrLEONGTengChauSeniorDirectorEconomicResearchSingaporeChineseChamberofCommerce&IndustryMsChristineLOHDirectorFuturesandStrategyDivision&EconomicSecurityandResilienceDivisionMinistryofTradeandIndustry

MrLUISengFattChairmanStrategicCapitalGlobalAssociateProfessorLUMSauKimDepartmentofRealEstateSchoolofDesignandEnvironmentNationalUniversityofSingaporeMsNEOBeeLengAssociateDirectorStrategyTemasekInternationalPteLtdMrNGBokEngExecutiveDirectorSpecialProjectsEconomicPolicyGroupMonetaryAuthorityofSingaporeMrNIZAMIdrisDivisionDirectorFixedIncomeandCurrenciesSpotSingaporeMacquarieBankLimitedSingaporeBranchMsPARAMITADasguptaPracticeManager,AsiaTrade&CompetitivenessWorldBankGroup,SingaporeProf.EustonQUAHHeadDivisionofEconomicsSchoolofHumanitiesandSocialSciencesCollegeofHumanities,Arts,&SocialSciencesNanyangTechnologicalUniversity

APPENDIX1:LISTOFPARTICIPANTS

103

DrArupRAHAChiefEconomistCIMBMrCarlRAJOOAssociateDirectorStrategyTemasekInternationalPteLtdMrPrakashSAKPALEconomistFinancialMarketsResearchINGBankN.V.,SingaporeBranchMrEmmanuelSANANDRESAnalystPolicySupportUnitAsia‐PacificEconomicCooperationMrSONGSengWunDirector/EconomistCIMBPrivateBankingMrTANChinHweeFoundingPartnerApolloManagementSingaporePteLtdMrJasonTANEconomistCentennialAsiaAdvisorsMsSarahTANStrategistFuturesGroupFuturesandStrategyDivisionMinistryofTradeandIndustry

MrTEEKoonHuiDeputyDirectorEconomicsUnitManpowerPlanningandPolicyDivisionMinistryofManpowerDrWalterTHESEIRASeniorLecturerUniSIMCollegeSIMUniversityMsTUSuhPingPrincipalEconomist/HeadDomesticEconomyDivisionEconomicSurveillance&ForecastingDepartmentMonetaryAuthorityofSingaporeDrVENKATRAMANAnanthaNageswaranIndependentConsultantVansightPrivateLimitedMrTimothyYAPHeadEconomicProgrammesDirectorateMinistryofFinanceMrShaunZHANGAssociateEconomicStrategyUnitEconomicProgrammesDirectorateMinistryofFinance


104

ObserversMrMarcusFUMSeniorEconomistDomesticEconomyDivisionEconomicSurveillance&ForecastingDepartmentMonetaryAuthorityofSingapore

MsJasmineKOHSeniorEconomistDomesticEconomyDivisionEconomicSurveillance&ForecastingDepartmentMonetaryAuthorityofSingapore

InstituteofPolicyStudiesMrCHANGZhiYangResearchAssistantDrFAIZALBinYahyaResearchFellow

MrLOWHan‐tzenAssociateDirector(Fundraising&DonorRelations)MrNGYanHaoResearchAssistant

105

Appendix2:CurriculaVitaeofPresenters,Discussants&Chairperson

PresentersandDiscussants

AlexMOURMOURAS is theDivisionChief in the InternationalMonetary

Fund’s(IMF)AsiaPacificDepartmentandMissionChiefforMalaysiaand

Singapore. Previously, he served as Chief of the European and Middle

Eastern Division in the IMF’s Institute for Capacity Development, as

SeniorEconomistinthePolicyDevelopmentandReviewDepartment,and

asEconomistintheFiscalAffairsDepartment.PriortojoiningtheIMF,Dr

Mourmouras was an Associate Professor of Economics and Director of

GraduateStudiesat theUniversityofCincinnati.HeobtainedhisPhD in

Economics at the University of Minnesota and his Bachelor's Degree in

AppliedMathematicsfromHarvardCollege.

Deborah TAN is a Senior Economist at the Monetary Authority of

Singapore (MAS). She covers developments in the Singapore economy,

withaprimaryfocusonthesurveillanceandanalysisofeconomictrends

and their impact on the economy. Prior to joiningMAS,MsTanwas an

Economic Consultant in PricewaterhouseCoopers London, where she

worked on a range of projects advising blue‐chip clients such asmajor

European investment banks and telecoms operators on micro and

macroeconomic issues. Ms Tan holds a M.Phil (Economics) from the

University of Cambridge and a BSc (Economics) from the University

CollegeLondon.


106

DeyiTANisanExecutiveDirectoratMorganStanleyandshecoversthe

ASEANeconomies.SheispartoftheAsiaPacificEconomicsteamthat is

ranked Top 3 by the Institutional Investor Survey in 2009 to 2011 and

2013 to 2015. Ms Tan joined Morgan Stanley after graduating with a

degreeinEconomicsandGovernmentfromLondonSchoolofEconomics.

TOHMunHeng isanAssociateProfessorintheDepartmentofStrategy

and Policy at the National University of Singapore Business School. He

obtained his doctorate degree in Economics and Econometrics from

London School of Economics. His research interests and publications

focus on econometric modelling, input‐output analysis, international

trade and investment, productivity measurement, and development

strategiesofemergingeconomiesintheAsiaPacific.Hehasco‐authored

and edited several titles such asChallengeandResponse:ThirtyYearsof

theEconomicDevelopmentBoard;PublicPoliciesinSingapore:ADecadeof

Changes; Competitiveness of the Singapore Economy: A Strategic

Perspective,amongmanyothers.

Between2003and2005,heservedasaLeadEconomistattheMinistryof

Trade and Industry. Associate Professor Toh has been invited to be

member and resource person in several government committees,

includingthePublicTransportCouncilandtheCommitteeforSingapore’s

Competitiveness. He has been engaged as a consultant in various

economic projects sponsored by agencies in the private and public

APPENDIX3:ABBREVIATIONS

107

sectors.In2009,AssociateProfessorTohwasawardedthePublicService

MedalintheNationalDayAward.

Vishnu VARATHAN is a Senior Economist, as part of the Singapore

Treasury Division, withMizuho Bank, where he oversees pan‐Asia (ex‐

Japan)coverageofmacro‐economicandFX/interestratemarketanalysis.

Apartfrompublishingreportsonaregularbasis,MrVarathanfrequently

engages Mizuho’s Multinational Corporation clients globally as part of

clientoutreach.Healsoregularlyvisitsregionalcentralbankstoexchange

views and share observations. Prior to joining Mizuho in 2011, Mr

VarathanwasAsiaEconomistwithCapitalEconomicsfrom2010to2011

and Regional Economist with 4CAST from 2006 to 2010; both

independent macroeconomic research houses. After graduating from

Nanyang Technological University with a Degree in Accountancy, Mr

Varathanstartedhis careerasanAuditorwithPricewaterhouseCoopers

beforepursuingaMastersinEconomicfromtheUniversityofSydney.

Chairperson

ManuBHASKARANisanAdjunctSeniorResearchFellowattheInstitute

of Policy Studies. He is also concurrently Partner and Member of the

Board, Centennial Group Inc, a policy advisory group based in

WashingtonDCwhereheheadstheGroup’seconomicresearchpractice.

MrBhaskaranco‐leadstheInstitute’sworkintheareaofeconomics.His

majorareaofresearch interest is theSingaporeeconomyandthepolicy

optionsitfaces.Priortohiscurrentpositions,heworkedfor13yearsat

theinvestmentbankingarmofSociétéGénéraleasitsChiefEconomistfor


108

Asia.HebeganhisprofessionalcareeratSingapore’sMinistryofDefence,

focusing on regional security and strategic issues. Mr Bhaskaran

graduatedfromCambridgeUniversitywithaMastersofArtsandalsohas

aMastersinPublicAdministrationfromHarvardUniversity.

109

Appendix3:Abbreviations

AEC ASEANEconomicCommunityASEAN AssociationofSoutheastAsianNationsCAPEX CapitalExpenditureCDG CapabilityDevelopmentGrantCLMV Cambodia,LaoPDR,MyanmarandVietnamCOE CertificateofEntitlementCPI ConsumerPriceIndexEPG EconomicPolicyGroupFDI ForeignDirectInvestmentG3 GroupofThreeGDP GrossDomesticProductGLCs GovernmentLinkedCompaniesGNI GrossNationalIncomeICT InformationandCommunicationTechnologyIMF InternationalMonetaryFundIP IntellectualPropertyIT InformationTechnologyMAS MonetaryAuthorityofSingaporeMNC MultinationalCorporationNIE NewlyIndustrialisedEconomiesNODX Non‐OilDomesticExportPMI PurchasingManagerIndexQoQ Quarter‐on‐QuarterR&D ResearchandDevelopmentSAAR SeasonallyAdjustedAnnualRateSME SmallandMediumEnterpriseSOR SwapOfferRateS$NEER SingaporeDollarNominalEffectiveExchangeRateTFP TotalFactorProductivityTFR TotalFertilityRateTPP Trans‐PacificPartnership


110

US UnitedStatesYoY Year‐on‐Year3Ds Demographics,DebtandDeflation

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