Country Rating AA2
- Stable political system and effective policymaking, including prudent macroeconomic policies
- High-income country that serves as a regional and global hub for trade with the world’s 2nd busiest port
- Strong external position with a track record of current account surpluses, ample foreign exchange reserves, and low public external debt
- Strong business environment and banking sector
- Strategic position at the heart of South-East Asia
- High dependence on exports
- Pressure on productive population due to high old age dependency ratio
- Shift to a mature economy implies slower growth in the medium and long-term
Towards a modest improvement
Real GDP grew by +2% in 2016. Exports growth continued to disappoint. Domestic demand was the main driver, supported by a strong fiscal policy.
In 2017, EH expects economic activity to somewhat accelerate (+2.5%) but remain well below the 10-year average (+5.5%, 2006-15). A gradual improvement in exports should be sustained by higher global demand. Reflation could bring some relief to turnovers and translate into a positive investment cycle.
Fiscal policy will remain flexible and supportive as it aims to address short-term challenges (limited export opportunities) and build strong foundations for the longer term (through innovation efforts, e.g.).
Short-term risks lie in a more protectionist US, weaker-than-expected demand growth in China and a tightening of global financial conditions. Insolvencies are forecast to increase by +12% in 2017.
A balanced policy mix
The central bank will maintain its prudent and neutral policy stance. Core inflation is set to pick up. Yet it would remain at a reasonable level (1 to 2%) limited by soft labor market conditions. Economic growth is improving and should be within the government’s target range of 1 to 3%.
Singaporean public finances remain sound and proactively supportive. The reduction of the fiscal space (general government balance went from 8.7% in 2011 to 2.4% in 2016) reflects to some extent the state’s involvement to steer growth in a much-altered environment. The 2017 fiscal budget, based on the recommendations of the Committee on the Future Economy (CFE), will be expansionary. It aims to support households and sectors such as construction and marine transportation. The government intends to offer corporate and personal tax rebates and launch public infrastructure projects.
External fundamentals are robust
As a strategic trade and financial hub, the city state is highly vulnerable to external shocks.
However, a solid external position provides a much needed cushion. Singapore has a sizeable current account surplus (more than 15% GDP), significant reserves (more than 6 months of goods imports) and a strong net international investment position. Constant efforts to boost innovation, improve logistic infrastructures, and strengthen business environment are helpful to the cause. Moreover, strong regulatory and monetary policy frameworks reduce currency and financial risks.