Friday, March 09, 2007

Can the Singapore economy continue to prosper?

It seems like it's going to be a rosy year for Singapore's economy with domestic spending likely to strengthen. In addition, inflation is expected to be contained even though the government lifted tax on goods and services. Trade and Industry Minister Lim Hng Kiang said that Singapore is in "good shape" and the island-nation will see another year of "robust" growth.

"Global economic growth is expected to be slower, but overall the external environment is still positive," Lim said. "Domestically, consumption is likely to strengthen, while investments will remain firm. We expect inflation to remain in check even with the impending GST increase in July." The labour market is "tight" with the unemployment rate at 2.7 percent last year and wages are rising, Lim said. According to the Ministry of Manpower, employers added 173,300 workers to payrolls last year. The marine industry will require about 15,000 new workers this year.

Singapore's economy is now more cushioned against volatile business cycles because the government has diversified the island's growth drivers. Singapore will focus on education, health care, water and environmental technology, alternative energy and digital media as future growth drivers, Lim said.

The government also said it concluded the seventh round of discussions with Canada for a free-trade accord that will boost business and investment between the two nations. "Our international trade linkages have never been stronger," Lim said. "Our FTAs have helped our companies achieve tariff savings of over S$470 million ($308 million) in 2006 alone. We are in active negotiations for 10 more free trade agreements."

There seems to be good news all around. However, things may not remain positive forever. Globalization ensures that no nation stands in isolation and an economic slowdown for a major power like the U.S. may change Singapore’s economic climate rapidly. Singapore is doing well in diversifying. It may be a sufficient measure for now but how long it will last still remains to be seen. What do you think?