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Banks & Taxes in Singapore

The Economy of Singapore

Generally, the economy in Singapore has a very good reputation. Its strong growth has earned the small country the nickname “Asian tiger”. However, since the economy of Singapore is dependent on exports, it has been affected by the slowdown of the manufacturing sector. Read more in our article.

At a glance:

  • What Singapore lacks in natural resources, it makes up for in terms of location. Natural deep-water ports and shipping routes make trade a key part of the economy alongside manufacturing and the service industry.
  • The future of manufacturing in Singapore is aerospace, precision engineering, and the life sciences, particularly bio-technology.
  • Singapore strongly believes in free trade, and in 2015 became the first ASEAN country to sign a Free Trade Agreement (FTA) with the European Union.
  • Despite a peak in GDP in 2014, growth has been declining over the last six years to around 2% p.a. However, inflation is now under control and economists predict a 3% annual growth in GDP by 2018.

Making the Most of Geography

As far as the economy of Singapore is concerned, the tiny state has made the best of some unfavorable conditions. Singapore has a small surface area of around 700 km². It lacks both arable land and natural resources, like fuels, metals, or minerals. It’s hardly surprising that only 1.3% of the labor force is employed in agriculture, and the primary sector doesn’t make a significant contribution to the GDP.

However, Singapore has one distinct economic advantage: the location. The 190 kilometers of coastline feature natural deep-water ports, and the island is situated along important shipping routes in Southeast Asia too. Trade and commerce are key parts of the economy. The government has also invested in education for decades. Human capital and a skilled workforce contribute to the prosperous economy in Singapore.

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The Future of Manufacturing

As mentioned above, the primary sector barely plays a role in the Singaporean economy. There is an agribusiness park where some foodstuffs are produced, and other agricultural products include orchids for horticulture or ornamental fish.

The manufacturing sector is much more significant. About 20% of Singapore’s GDP comes from industry, and the secondary sector employs 15% of the workforce. The petrochemical industry in particular is very important for the local economy; the country imports a lot of crude oil for refined petroleum products.

Singapore places great emphasis on high-end manufacturing including semi-conductors and consumer electronics, as well as machinery, transport equipment, and ships. The government is also trying to foster future growth sectors such as aerospace, precision engineering, and the life sciences including bio technology, medical equipment, and pharmaceutics. There is a huge overlap with the service industry, which caters to medical tourists and the needs of an aging population.

Breaking Free Trade Boundaries

Singapore’s business-friendly environment has not only encouraged investment in manufacturing; the service sector drives the economy. It provides jobs to 80% of workers, and creates over 75% of the gross domestic product.

Trade, shipping, and logistics are essential industries. The Port of Singapore is the one of the busiest cargo ports in the world: the country has a flourishing import/export trade with China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Saudi Arabia, and the US.

In general, the Singaporean government favors globalization and free trade. Import tariffs are low to non-existent, and the tiny state is an active member of NATO, ASEAN, and other multinational trade organizations. It has entered into many free trade agreements, and in 2015 became the first ASEAN country to sign a Free Trade Agreement (FTA) with the European Union.

Banking, finance, and insurance also make up a large part of the economy in Singapore. There is a reason why the country is sometimes called “the Switzerland of Asia” — Singapore’s CBD has made a name for itself when it comes to wealth management.

Investing in the Future

Singapore’s pro-trade environment and commitment to free trade have created an easy and efficient place to do business. Its investment in infrastructure projects and new industrial parks, and growing reputation as a high-tech research and development hub provides more opportunities for the near future.

As well as being a good place for business, expats have long been attracted to the city-state for its safe environment and high standard of living. There are, however, pronounced financial inequalities among the Singaporean population.

The Aftermath of Recession

Singapore has had to cope with increasing competition from regional emerging markets and the demographic challenge of an aging society. Above all, its reliance on exports has proved to be a burden in times of global economic uncertainty. Both in 2001 and 2009, the economy of Singapore contracted by 1-2% after the worldwide financial crisis.

While the economy bounced back each time — it grew by nearly 15% in 2010 — growth has declined over the past six years.  The GDP peaked in 2014, but has now slowed to a growth of about 2% a year. Economists, however, are cautiously optimistic, predicting a 3% annual growth in GDP by 2018.

In the immediate aftermath of the recession, Singapore struggled with high inflation rates. From over 5% in 2011, they have now managed to reduce this to just 1% in 2016. Unemployment rates have remained mostly stable since 2007, averaging at 2%.

Updated on: December 11, 2019

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