Prosperous time for city state

Singapore's economic strength is widely considered a yardstick for the health of the world economy because of the city state's reliance on global demand. Political stability plays a key role in ensuring economic well-being and, despite global uncertainty and a slowdown in China, the Singapore government is confident of achieving overall growth in 2013 of between 1 per cent and 3 per cent.

In July, the government released advanced estimates that the Singapore economy had grown 3.7 per cent in the second quarter of 2013 compared to a year earlier - its fastest pace of growth in almost two years.

Prime Minister Lee Hsien Loong has said that stability in government, which Singapore has successfully managed to achieve in its 50 years of independence, is crucial to economic prosperity.

"It starts with politics, because if your politics are wrong, then your economics are bound to go wrong," Lee said during a dialogue session at the DBS Asian Insights Conference in July. "And the reason why so many countries cannot get the economies right is because if the politics don't work, the benefits don't get spread to the right people or broadly enough, or there are vested interests which have to be taken care of, or there's some divide in the society which cannot be bridged, and you spend your time fighting over that, rather than working together productively.

"And I think we've got to be able to get the fundamentals right, and so far we have been able to do so. And if we can continue to get the politics right, then I think the economics can work out."

Not since the third quarter of 2011 has the Singapore economy grown so fast, thanks mainly to a recovery in the wholesale and retail trade sector, and the transport and storage sector. First-quarter growth was 0.2 per cent. Although analysts expect the city state to be hit by a slowdown in China, many maintain that growth will be in line with government expectations.

Manufacturing grew at 1.1 per cent in the second quarter, making a significant rebound after contracting 6.9 per cent in the previous quarter, while construction slowed to 5.6 per cent from 6.8 per cent. Service industries grew 5 per cent, highlighting its importance to Singapore after the opening of two casino-resorts.

Last month, the Monetary Authority of Singapore (MAS), the country's central bank, announced that it had posted a net loss of S$10.61 billion (HK$65 billion) in the last fiscal year, with gains in the Singapore dollar against the yen and euro eroding the value of its foreign currency reserves. The MAS made a net profit of S$2.77 billion in 2011/12, but managing director Ravi Menon said at a press briefing: "We made good investment returns, but when measured in Singapore dollars, these gains were more than offset by the strength of the currency." He said Singapore would comfortably achieve its 2013 growth target of between 1 per cent and 3 per cent.

Singapore continued to be a major regional trading hub last year. According to International Enterprise Singapore (IES), trade volume rose from S$516 billion in 2003 to S$985 billion in 2012 in nominal terms, achieving a compound average growth rate of 7.4 per cent. The value of Singapore's merchandise trade is now 2.85 that of its GDP, reflecting the importance of trade to its overall economy. An IES report says Singapore's merchandise trade includes a large volume of entrepot trade, which is not subjected to import and export duty. Domestic exports - goods made or assembled in Singapore - comprise 56 per cent of exports, the rest being re-exports.

The products that dominate Singapore's exports have changed significantly over the past decade, according to IES. In 2003, machinery and transport equipment represented 60 per cent of exports, while last year, that figure dropped to 43 per cent as the importance of mineral fuels, lubricants and related material, and chemical and chemical products increased. Pharmaceutical products were the main driver for the boost in chemical and chemical products exports, rising to S$33 billion last year from S$16 billion in 2003.

In the first half of this year, China overtook Europe to become Singapore's No 1 export market, leaving the city state vulnerable to any slowdown on the mainland. From January to June this year, 12.8 per cent of Singapore's non-oil exports went to China, with the European Union receiving 12 per cent.

Exports to China in 2012 totalled S$54.87 billion, while Singapore imported S$47.75 billion worth of goods.

Hong Kong has long been one of Singapore's top trade partners, with exports to the city last year worth S$55.90 billion and imports worth S$3.64 billion. Hong Kong Trade and Industry Department figures from 2011 show that Singapore was Hong Kong's fifth-largest trading partner, fifth-largest market for domestic exports and ninth-largest market for re-exports. It was also the third-largest source of imports. From 2007 to 2011, the average annual growth rate in bilateral trade between Hong Kong and Singapore was 6 per cent.

Singapore's top imports of Hong Kong domestic products are tobacco and tobacco products, inorganic chemicals and jewellery, gold and silver wares, and other precious or semi-precious materials.

Key re-exports to Singapore from Hong Kong, which made up the bulk of goods shipped to the city state, include electrical machinery, apparatus and appliances and electrical parts; telecommunications, sound recording and reproducing apparatus and equipment; and office machines and automatic data processing machines.

Singapore's top exports to Hong Kong include electrical machinery, apparatus and appliances, and electrical parts; petroleum, petroleum products and related materials; and office machines and automatic data processing machines.