Singapore panel issues subdued economic forecast

February 2, 2010
Singapore Democrats

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Patrick Barta & Sam Holmes
The Wall Street Journal

rising number of Singaporean business and political leaders expect economic growth to slow significantly over the next decade as the country adjusts to being a rich, developed nation, signaling a possible end to Singapore’s multi-decade run as one of the fastest-growing economies in the world.

The latest subdued forecast came Monday, when a group of government and corporate leaders headed by Singapore’s Finance Minister said the country would struggle to achieve 5% growth over the next decade.

Their projections, in a report on the future of Singapore’s economy, are below past rates of growth, which averaged slightly above 8% between 1960 and 2000. Expansion surpassed 7% for several years before the recent global financial crisis, buoying hopes that Singapore would continue to maintain emerging-market growth rates for years.

“We cannot grow at the same rate that we achieved in the last decade,” Finance Minister Tharman Shanmugaratnam said Monday.

The forecast echoed comments last week by Prime Minister Lee Hsien Loong, who predicted in a speech that 5% growth would be hard to sustain. “I think 5% will be a stretch,” he said.

Slower growth isn’t easily accepted in Singapore, which prides itself on having one of the most dynamic economies in Asia. It has consistently outperformed expectations in large part by positioning itself as a haven for investors and multinationals seeking a big presence in Asia but worried about unpredictable laws and unstable governments in less-developed neighboring countries.

Maintaining rapid growth also is seen as key to making sure an already-wide gap between rich and poor doesn’t get worse in Singapore and possibly lead to social unrest.

Singapore’s leaders have become more cautious about the outlook in the aftermath of the financial crisis. Many worry that Singapore’s export-heavy economy leaves it too reliant on swings in consumer demand elsewhere, especially from places such as the U.S. and Europe that are expected to take years to fully recover from recession.

In addition, Singaporean companies have posted productivity levels that are below those in other developed countries—a problem that could translate into lower standards of living than other wealthy nations in the long run.

The report released Monday, by an economic strategy committee set up in May, aimed to address such concerns by issuing a blueprint for keeping Singapore competitive in the years ahead. It called for tighter rules on immigration to encourage employers to boost productivity instead of relying too heavily on cheap foreign labor. It also called for more investment in research and development and said that even growth of 3% to 5% would be better than most other advanced economies.

The idea of reining in immigration is controversial. Many Singaporean employers count on foreign workers to keep their costs low, but the report warned “we will run up against real physical and social limits” if recent high rates of immigration continue. The committee advised raising levies on foreign workers to gradually force employers to invest in more productive operations, with a goal of achieving 2% to 3% annual productivity growth—more than double the 1% rate achieved over the last decade.

The recommendations of the committee, whose members include government ministers as well as regional representatives from Siemens and PricewaterhouseCoopers LLP, aren’t binding. The government is expected to respond to the conclusions in its 2010 budget statement due on Feb. 22.

Even with slower growth, Singapore remains in an enviable position compared with other Asian nations, in part because of its continued reputation for modern infrastructure and clean government.

“Singapore is still sitting in a pretty sweet spot as a hub for international companies serving the Asian market,” said David Cohen, an economist at consultancy Action Economics in Singapore. “I should think they should be able to ride that status” and still post growth that’s faster than the U.S. and Europe.