21 February 2011

How Fast Should the Singapore Economy Grow?

Singaporeans' reactions to the wave of foreigners coming here to work are a key reason for the slower growth being forecast for this year after a 14.7 per cent growth (advance estimate; the preliminary number is 14.5 per cent) in 2010, Minister Mentor Lee Kuan Yew said on 11 February 2011.

"To keep up our strong performance, we needed more (foreign) workers.  This caused some disquiet.  So we are slowing down the numbers of new permanent residents.  We must accept slower growth as a result," he said.

Still, the 4 to 6 per cent growth projected for 2011 is "very good" for Singapore's mature economy, he added.

Not only is the 4 to 6 per cent growth projected for 2011 very good, it is faster than the government's own assessment of Singapore's medium-term trend rate of growth of 3 to 5 per cent.

Annual GDP growth of 3 to 5 per cent is healthy for an economy at Singapore's stage of development, and exceeds that of most advanced countries, which typically grow by 2 to 3 per cent.  Growth in any one year may be higher or lower.  Average GDP growth over the current decade is unlikely to match the 5.0 per cent achieved over the last decade.  Nevertheless, it will generate the resources needed for social investments in health, education and schemes to help lower income citizens move up, and to safeguard security.

Most of the 5.0 per cent GDP growth over the past decade (2000-2009) was achieved by importing foreign labour.  Productivity improvements accounted for only one-fifth of GDP growth.

Singapore cannot afford to maintain the 14.5 per cent economic growth achieved in 2010, unless it is the unlikely result of further productivity improvements.  But no one should agonise over it.  14.5 per cent is exceptional, maybe even extraordinary.

Singapore cannot afford to be greedy, salivating at and pursuing growth rates much above its medium-term trend rate if it requires importing more and more foreign labour.  (Whether such immigrants should be granted permanent residency is another matter.)

If over an extended period, the short-term economic growth rate exceeds the medium-term trend rate and shows no sign of abating, the government should review its policies and programmes to slow it, however tempting it may be to take a hands-off approach and regardless how unpopular such measures may be with businesses.

Governments strive to achieve economic growth to create enough jobs for their citizens and to generate enough resources for social programmes and security.

---------------
Notes

1.  "Fewer Foreigners, Slower Growth: MM", The Straits Times, 12 February 2011.

2.  Remarks by Ministry of Trade and Industry and Monetary Authority of Singapore at the presentation of "Economic Survey of Singapore 2010", 17 February 2011.

3.  "Report of the Economic Strategies Committee", 2010.

No comments:

Post a Comment