Singapore — February 2022
Singapore outperforms advanced economy peers on measures of income and the business climate. Low tax rates and pro-business environment attract significant foreign direct investment, and have helped the country become one of the wealthiest, on a GDP per capita basis, in the world. Creditworthiness is high, as is the case in many advanced economies. Growth prospects are in line with advanced economy peers, notwithstanding downside risks from the pandemic. Singapore ranks highest in the world for human capital development.
The above chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate rank and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2022 and 2026. Business climate is measured by the World Bank’s latest Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other countries in the region.
Singapore’s export-oriented economy struggled in the face of the COVID-19 pandemic. Real GDP fell 5.4% in 2020, the biggest contraction since independence in 1965. The large aviation, transport and hospitality sectors suffered from the downturn in tourism and mobility restrictions over the past couple of years. Growth resumed in 2021, as the city-state’s real GDP expanded 6%. Recovery in global trade, large fiscal stimulus packages implemented in 2020 and 2021 and accommodative monetary policy supported recovery in exports and domestic demand.
The outlook is positive. Export-manufacturing should benefit from growing demand for semiconductors and electronics equipment. Tourism-related industries such as retail, transport and hospitality, will likely see some recovery as international borders reopen. That said, global economic headwinds and uncertainty regarding the pandemic remain key risks to the outlook.
Longer term challenges include an ageing population and mitigating exposure to environmental risks. But Singapore’s strong fiscal and external buffers and highly effective institutions provides authorities significant scope to address these cyclical and structural challenges.
Singapore’s per capita GDP declined in 2020 before strengthening in 2021 alongside the economic recovery. According to IMF data, Singapore’s GDP per capita was the 8th highest in the world in 2021, ahead of Australia (9th) and Qatar (10th). Per capita GDP is expected to cross US$80,000 by 2026. Authorities’ ongoing plans to invest further in human capital and pursue policies that transition the country to a higher-productivity, knowledge-based economy will help support growth in incomes.
Country risk in Singapore is low, suggesting a relatively low likelihood that it will be unable or unwilling to meet its external debt obligations. Singapore has the highest possible sovereign credit ratings from Moody’s, Fitch and S&P, and these ratings have been maintained throughout the pandemic, due to the city-state’s large fiscal and external buffers.
Singapore is ranked 2nd out of a possible 190 economies on the World Banks ease of doing business scorecard, only behind New Zealand. Singapore excels in all areas of doing business, particularly enforcing contracts, protecting minority investors, starting a business, dealing with construction permits and paying taxes. The Singaporean government places a strong emphasis on implementing policies to enhance the business environment and facilitate investment.
Singapore ranks near the top in most areas of governance, but less so on voice and accountability.
Expropriation risk is low. Singapore has an efficient, business-friendly regulatory environment for investment.
Political risk is low. Singapore has one of the most stable political systems in the world; the People’s Action Party (PAP) has been the main governing party since 1959. Policies are predictable and governance is very high.
Singapore is Australia's largest trade and investment partner in ASEAN and was the sixth largest bilateral trading partner overall in 2020. Australia and Singapore have a bilateral free trade agreement and are both also member countries of the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The COVID-19 pandemic has disrupted bilateral trade over the past couple of years. But goods exports to Singapore managed to rise in 2020 to $13 billion. Iron ore sales amounted to about $2.6 billion in 2020. Alongside iron ore, energy products contributed significantly to goods exports. Australia also sent about $1.3 billion in agricultural products to Singapore in 2020, led by animal oils and fats, meat, beef, milk, cream and yoghurt. Manufactured product exports totalled $1.8 billion and gold exports amounted to $1.4 billion. Goods imports from Singapore fell sharply to roughly $7.4 billion in 2020 from $10.4 billion in 2019. The bulk of imports are refined petroleum products.
The COVID-19 pandemic and associated international travel restrictions have hurt services trade over the past couple of years. The ongoing pandemic points to another year of uncertainty for services exports in 2022. Longer term, rising incomes in Singapore will likely support demand for Australian education and tourism.
Notwithstanding the pandemic, Singaporean investment in Australia rose to $116.5 billion in 2020 from $100 billion in 2019 (representing 2.9% of the total stock of foreign investment). Singaporean investment has traditionally been concentrated in real estate but has become somewhat more diversified. For instance, the Government of Singapore Investment Corporation recently increased its investment in e-commerce, logistics, data centers, fintech, and health-tech, and has also expressed an interest in infrastructure and energy.
Australian investment in Singapore softened to $63 billion in 2020 from $84 billion in 2019 (accounting for 2.1% of Australia’s foreign investment portfolio). Major businesses invested in Singapore include the four major banks; engineering design and construction firms including Lend Lease Asia Holding and CIMIC Group and logistics groups such as Toll Holdings. BHP Billiton and Rio Tinto are among other Australian corporates that have some business functions based in Singapore.
In December 2020, the Australia-Singapore Digital Economy Agreement (DEA) came into force. The DEA updates the Singapore-Australia Free Trade Agreement to provide increased market access and certainty for exporters in both countries. Singapore and Australia agreed to further the bilateral partnership through the $30 million Green Economy Agreement (GEA) in 2021. The GEA is expected to facilitate trade and investment specifically in the environmental goods and services sector and building capacities in the two countries to tackle climate change through collaboration on low emissions technologies.