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How Singapore recovered from past recessions

Here’s how a constantly evolving focus on macroeconomic policy and productivity has helped Singapore become one of Asia’s top economies.

1965

In 1965, Singapore’s nominal per capita gross domestic product (GDP) was US$500, which was the same as Mexico and South Africa. Self-government from Britain in 1959 and the subsequent political upheavals to full independence in 1965, found a Singapore that, while bursting with potential, still suffered from high unemployment. Its population growth then was the highest in the world. Nevertheless, the high quality of labour, the potential for it to be directed toward manufacturing and the need for capital to be directed towards industry were all identified as potential opportunities.

The resulting policies included low taxation on investment, tax holidays, a crash course in industrialisation – marked particularly by the creation of the Jurong industrial area – state education improvements to suit employers, promotion of English as the language of instruction, and a massive public housing programme. Among other benefits, these policies improved people’s work opportunities.

Above all, they displayed what was to become the mainstay of Singaporean economic policy for many decades to come: a very high level of openness to foreign investments, relatively liberal immigration policies, domestic wage restraint and the reduction of government tax and regulatory burdens on businesses in times of crisis.

These measures have fundamentally driven Singaporean development since that time – shortening recessions and in some cases avoiding them altogether as other economies suffered. By 1970, Singapore had achieved full employment.

1970s

The 1970s was a decade of shocks such as the 1973 oil crisis and US stock market crash, and the 1974 global recession. With such an outward looking economic policy, one might have expected Singapore to suffer heavily. Instead, the government went out of its way to attract more investment by reducing labour costs and encouraging labour-intensive investments. 

Singapore continued to expand throughout the decade. By the 1980s, Singapore had emerged as a Newly Industrialised Economy, joining the ranks of Hong Kong, Taiwan and South Korea.

1990s

Between 1985 and 1996, Singapore’s per capita GDP went from US$6,794 to US$27,197, a truly staggering development. In 1990, Singapore’s GDP per capita rose to about US$13,000, surpassing South Korea, Israel, and Portugal. 

In 1997, the Asian Financial Crisis gripped the region. But compared to other economies, Singapore was in a good place. As the 1997 crisis in Thailand unfolded and spread to other economies, currencies across the region collapsed and foreign investors withdrew.

In what were by now tried and tested ways, the government reacted by using the same tools at its disposal: cutting costs to restore competitiveness through reductions in government fees, reduced the burden of Central Provident Fund (CPF) contributions for businesses and made wage reductions across the state sector. It worked. Singaporean competitiveness was restored, and the economy bounced back.

2010

In 2010, the Singapore economy recovered strongly from the Global Financial Crisis of 2008-2009 with an all-time high GDP growth rate at 14.5%, the fastest annual growth rate on record, according to the Monetary Authority of Singapore. Also, wage growth sped up, thanks to the strong economic upturn. Singapore’s total employment also grew by 115,900 and the labour force participation rate reached a record high.

The government had responded to the financial crisis with an emphasis on diversification into tourism and services, most notably with the activities tied to the two Integrated Resorts.

For its S$20.5 billion ‘Resilience Package’ for the 2009 financial year, the government withdrew cash from the country’s reserves for the first time and earmarked S$4.9 billion to help both Singaporeans keep their jobs and offer strategic support to industry in order to drive down business costs and avoid corporate failures.

In 2013, Singapore became the richest country in the world by IMF estimates, with a per capita GDP of US$61,567.

2016

Last year, Singapore achieved a GDP per capita based on PPP (Purchasing Power Parity) of US$85,208.8, according to the World Bank database. Overall, GDP growth had been the slowest in six years, since 2009; the economy grew by just 2.1 per cent in 2015. This year, experts are concerned that Singapore’s economic growth is losing steam. The slump in the services sector — particularly in the financial services industry — has upped the risk of a technical recession. Still, a readiness to adjust policies will likely help Singapore overcome global economic headwinds.

By Brian Scudder

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