Growing Singapore

a.    Progress in Restructuring :-

Over the past five years, our economic restructuring journey has focused on raising productivity to achieve    quality growth.                                                                                                                                            a)We       tightened       the     inflow           of       foreign workers;                                                                                                         b) We invested significantly in broad-based measures such as the Productivity and Innovation Credit(orPIC);     and,                                                                                                                                               c) We introduced the Transition Support Package to help firms adjust to economic restructuring and rising business costs.

Progress has been promising.                                                                                                                                  a) More firms are engaging in productivity efforts. For instance, a survey has shown that around 9 in 10 of our SMEs embarked on productivity initiatives in 2015.                                                              b) The net inflow of foreign workers has slowed significantly from nearly 80,000 in 2011 to less than 23,000 in 2015 .

With a tighter labour market, we managed to sustain real median income growth for Singaporeans at an average of 2.9% per year over 2009 to 2015.

Productivity growth has not been as strong as we would like. While productivity has grown by an average of 2.7% per year over 2009 to 2015 , most of this increase was due to the cyclical rebound in 2010 and 2011. Productivity growth has remained relatively flat over the past three years . We must keep working on this.

b.    Economic Challenges :-

Cyclical Headwinds

In 2015, the economy grew by 2%. The performance across sectors was varied: wholesale and retail trade, and finance and insurance did well, while manufacturing, in particular the marine and offshore segment, declined.

Current business conditions are difficult and uncertain. Many of our firms are facing weaker top-line growth, rising manpower costs and tighter financing. Workers are anxious as retrenchment has increased, including among professionals.

In the coming year,  economy’s heavy dependence on external demand, the weaknesses in the global economy will pose strong headwinds.

The pace of global economic recovery is uneven, with the US being the most advanced, while Europe and Japan will only see modest growth aided by monetary stimulus. Closer to home, China is going through a transition towards a more sustainable growth path. It is a complex transition and any short-term setbacks may create volatility in the financial markets.

We therefore expect externally-oriented sectors such as manufacturing to continue to face subdued demand. The extended downturn in oil and other commodity prices is affecting commodity-related activities, particularly the marine and offshore sector. Weak global demand in electronics will spill over to related sectors such as precision engineering.

But while overall growth is subdued, our business landscape is varied. There are pockets of growth and resilience. Even within manufacturing, the medtech and chemicals sectors are growing. Exports of services, including tourism, financial services, Information and Communications Technology (or ICT) and consultancy are benefiting from regional demand. Domestic oriented sectors such as retail, healthcare and education have been, and should remain, stable. Construction, too, will be supported by a large expansion in public infrastructure and housing projects, even as private residential demand has ebbed.

Within sectors, prospects vary across firms. Some are becoming more competitive and gaining market share, while others are seeking to relocate to cheaper destinations.

Similarly, prospects in the labour market are mixed. Overall, redundancies increased in 2015 as global demand slowed and restructuring continued. Some of those made redundant took longer to find jobs. At the same time, however, unemployment remained low at 1.9%. While some sectors such as the offshore and marine and manufacturing are retrenching staff, others such as healthcare, education, and ICT are hiring.

In summary, while we face weaker prospects overall, MTI expects GDP to grow at 1% to 3% for the year, not very different from the 2.0% in 2015. So while conditions are difficult, we should not be overly pessimistic.

Structural Changes

Even as we tackle immediate cyclical weaknesses, we must be alert to major structural changes abroad and at home.

a.    Major economies are continuing to restructure, and will alter the global competitive landscape in the process. China is rebalancing towards consumption and services led growth, and developing innovation-intensive industries. India is building on its strengths in ICT, and seeking to attract manufacturing investments. These ongoing changes are rapidly changing the patterns of trade and specialisation in Asia.

b.    Technological changes, especially in robotics, automation, artificial intelligence and ICT, are disrupting business models across all sectors. Some call the coming changes “Industrial Revolution 4.0.”

c.    At home, manpower growth is slowing, and our population is ageing. Real wage increases over the past few years have benefited workers and households. But unless productivity improves in tandem, we will be less competitive, and both businesses and workers will be worse off.

All these changes pose intense challenges for our businesses, which will have to succeed in a more competitive environment while contending with tighter labour constraints. The need to restructure is both urgent and critical.

While there are challenges, there are also growing opportunities. We are in the centre of the Asian growth story: China, India and ASEAN are expected to grow at 6.3%11 per year over the next five years, accounting for about one-third of global growth. The ASEAN Economic Community, the Trans-Pacific Partnership, and China’s One Belt One Road initiative will open up new opportunities.

We are well placed to benefit from technological changes – our investments in education, R&D and digital infrastructure will enable us to seize new opportunities.