Here’s what passes for good news in Singapore these days: Gross domestic product contracted at an annualized rate of 14.6% in the first quarter. How could that be considered positive? In last year’s fourth quarter, the economy shrank at a rate of 16.4%, and many economists thought the first quarter’s plunge might approach 20%.
As Southeast Asia’s most open economy, Singapore is suffering far more than its neighbors from the global crisis. With 4.6 million residents living on a steamy tropical island half the size of Houston, Singapore’s leaders have long believed domestic consumption by itself could never keep the economy humming. So the government has lined up 15 free-trade agreements, helping make Singapore one of the world’s most trade-dependent countries, with exports accounting for 60% of GDP. Singapore has also encouraged investment in a slew of advanced export industries such as semiconductors, pharmaceuticals, and green technologies — and it remains committed to manufacturing. “As a city-state, you need an economy that stands on many pillars,” says Beh Swan Gin, managing director of the Economic Development Board, which promotes foreign investment in the country.
Those pillars depend on healthy external demand. In the first quarter, exports dropped 25.6% after falling 17.9% in the fourth quarter. Although the country is a transportation hub, with the airport regularly cited as one of the world’s best, arrivals fell 13.7% in the first quarter. For the year, GDP may shrink 7%, says consultancy Action Economics. “Singapore is taking its lumps,” says David L. Cohen, an economist with Action Economics.
To fight the recession, Singapore has put together what the government calls a $14 billion “resilience package.” It includes corporate tax cuts, subsidies to companies that don’t lay off workers, and offers to cover 90% of the costs of employee training. That has kept unemployment at 3.2% through the first quarter, which Beh calls “quite manageable.” But the rate is up from 1.9% a year ago, and “the picture may look a little bit worse in the coming quarters,” he says.
The recession hasn’t diminished Singapore’s zeal to make the city a science and technology hub. The government is pushing ahead with plans for three new universities, including one linked to the Massachusetts Institute of Technology. It has inked a deal with Nissan (NasdaqCM:NSANY – News) and Renault to test electric cars here. It’s providing a $300 million loan to memory-chip maker Micron Technology (mu.) to upgrade a factory. And it has encouraged big drugmakers such as Abbott Laboratories (abt.), Novartis (NYSE:NVS – News), and GlaxoSmithKline (gsk.) to set up research centers at Biopolis, a government-funded biotech park.
The recession may be easing. Dr. Steven Tucker, an oncologist who worked for 10 years at UCLA’s Cedars-Sinai Medical Center before moving to Singapore in 2006, is helping plan a cancer center for a Singapore group called Pacific Healthcare. Construction was to have begun in January, but funding troubles caused Pacific to hit the brakes. “I was certainly worried,” says Tucker. Now with the economy stabilizing, construction is under way again, and he says the center will open in 2012.
And Kato Spring, which bends wires into springs and other components for consumer electronics, restarted its second shift in mid-May. “Business is picking up,” says manager William Eng. That contrasts with last autumn, when orders fell by half and Kato had to cut managers’ pay, lay off 15% of its 200 workers, and tap a government-funded initiative that kept idled employees busy learning skills. “We had intended another training program in May,” Eng says. “But we had to put it off because of new orders.”