Singapore

Strong fundamentals and policy support against an unprecedented shock

AA1

MEDIUM RISK for enterprise

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

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GDP	USD339.9bn (world ranking 36, World Bank 2020)
Population	5.7mn (world ranking 114, World Bank 2020)
Form of state	Parliamentary Republic
Head of government	LEE Hsien Loong (PM)
Next elections	by July 2025, general election

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
Land scarcity as the government seeks to expand population in the long run

2020-21 outlook: a long and uncertain return to normal

We expect Singapore’s GDP to contract by -5.1% in 2020 (after +0.7% in 2019), and rebound to +4.5% in 2021. The first half of 2020 was marked by a technical recession (two consecutive quarters of negative q/q growth) as a result of the global Covid-19 pandemic. Confinement measures (‘circuit breaker’) put in place in Singapore in April led to a sharp contraction in construction and services, and a large drop in GDP in Q2 2020. As confinement measures are eased in Singapore, the economy should gradually recover in the second half of 2020. External demand should be supported by the recovery in Singapore’s trading partners, in particular China. Despite a recovery path, it will take a long time for the Singapore economy to digest the Covid-19 shock. We expect Singapore GDP to come back to pre-pandemic levels in 2022.

Risks to the outlook are on the downside, stemming in particular from the epidemic situation. Renewed Covid-19 outbreaks (domestically and globally) would jeopardise the recovery of domestic and external demand. U.S.-China tensions constitute an additional risk to global trade flows. Note that the Singapore Ministry of Trade and Industry expects 2020 growth between -7% and -4%.

Macro-policies: flexible and supportive

After easing the monetary policy in March 2020 (by adjusting downwards the Singapore dollar NEER policy band), we expect the Monetary Authority of Singapore to keep policy on hold for the remainder of the year. Risks are however on the dovish side, particularly if the recovery proves slower and weaker than expected.

Fiscal policy has and will continue to play the main role in cushioning the Covid-19 shock and supporting the economy. As of mid-2020, the government has passed four fiscal stimulus packages, amounting to more than 19% of GDP. The focus is on supporting businesses (rental waivers, funding for SMEs, etc.), creating jobs and supporting households (e.g. utilities credits). The overall fiscal effort should lead the basic deficit to reach a record high of -15.7% of GDP in FY2020 (vs. -1.0% in FY2019).

Business environment: top notch

The country usually tops the rankings in all business-related surveys. It ranked 2nd in the last World Bank Doing Business survey, helped by business-friendly regulation (easiness to open business, to construct), favourable taxation and business protection. It also ranks 7th in the Logistic Performance Index, with good rankings in both hard (physical) and soft (e.g. institutions) infrastructure. Politically, the environment is stable, with the same party in power since independence and a proactive and stable policy direction.

Trade structure by destination/origin

(% of total, 2020)

Exports	Rank	Imports
China 15.5%	1	14.4% China
Malaysia 11.3%	2	13.0% Malaysia
China, Hong Kong SAR 11.1%	3	11.1% United States of America
United States of America 8.5%	4	8.8% Taiwan
Indonesia 6.5%	5	5.6% Japan

Trade structure by product

(% of total, 2020)

Exports	Rank	Imports
Electrical machinery and apparatus 30.1%	1	25.5% Electrical machinery and apparatus
Petroleum and related materials 12.1%	2	16.2% Petroleum and related materials
Organic chemicals 4.8%	3	5.1% Gold, non-monetary (excluding gold ores and concentrates)
Office machines and automatic data processing machines 4.7%	4	4.7% Office machines and automatic data processing machines
Specialised machinery 4.5%	5	4.4% Other transport equipment

The payment behavior of domestic companies and the DSO is good. However, the law provides no guidelines as to how late payments should be handled and contracts remain the only reference when business relationships turn sour.

Low
Medium
Sensitive
High

Payments
Court proceedings
Insolvency proceedings

Payments
Court proceedings
Insolvency proceedings

Overall, legal action remains expensive even though the court system is fairly efficient.

The insolvency framework is in line with international standards however in practice, as in most countries, collecting debt from insolvent debtors would prove to be a genuine challenge.