Singapore is a developed country in Asia. It has no natural resource so most of its goods and services are imported from neighbouring countries. However, Singapore’s economy is still growing at a steady pace, showing good economic prospects. Through this report we will analyse and discuss Singapore’s GDP, inflation and unemployment as well as use the different macroeconomic theories and models to assess the economy. 2. GROSS DOMESTIC PRODUCT (GDP)A nation’s economic performance is represented by the Gross Domestic Product (GDP). The GDP measures what a nation produces during a particular time period in monetary terms.In overall, Singapore’s GDP has grown 5.
2% in quarter 3 of 2017, far exceeding the growth of 1.2% in quarter 3 of 2016. It has also exceeded the expected GDP growth of 2.9%.
In the third quarter, Singapore’s manufacturing sector increased by 18.4%. This has increased by a significant amount of 10% from the second quarter.
Every manufacturing sector showed growths, apart from transport engineering, where there was a decrease in production. In the third quarter, Singapore’s services sector increased by 3.2%, dropping slightly by 0.2% as compared to the second quarter. The finance and insurance sector boasted the largest growth due several reasons such as the expansions in insurance and etc. However, the accommodation & food services sector continued to face a contraction in their growth. On the down side, Singapore’s construction sector shrank by 7.6%.
This was caused by weaknesses in all aspects of construction activities.Manufacturing The total production in the electronics sub-sector took up a huge 13% out of the total manufacturing percentage of 18.4%. With many countries investing into the technology markets such as driverless cars, the global sales of semiconductors rose from 1.1% in 2016 to 20.6% in 2017. With the increasing global demand of semiconductors, Singapore, which is one of the largest producers of semiconductors, will continue to experience a growth in this sub-sector. Also, the computer peripherals sub-sector has also contributed to the growth due to an increased demand for printing products.
The transport engineering cluster marked a -0.2%. This was due to a decline in output in the marine and offshore engineering sub-sector of rig-building, shipbuilding and repair activities. This was due to the lingering effect of the oil price crash in 2014. Construction In the third quarter, nominal certi ed progress payments (a proxy for construction output) fell for the fifth consecutive quarter, contracting at a pace of 20 per cent, easing from the 23 per cent drop in the previous quarter (Exhibit 2.
3). The decline in construction output was primarily due to a fall in private certi ed progress payments. In particular, private certi ed progress payments declined by 28 per cent, driven by a slowdown in private residential building works (-30 per cent) and private industrial building works (-31 per cent). Construction output was also weighed down by a decline in public certi ed progress payments (-11 per cent), which came on the back of a fall in public residential building works (-30 per cent) and public civil engineering works (-6.
2 per cent). Services The finance & insurance sub-sector experienced a growth of 5.9% in the third quarter. The growth of the sub-sector was a result of financial intermediation growths.
Asian Currency Unit (ACU) non-bank lending expanded by 11% while Domestic Banking Unit (DBU) non-bank lending, with increments in loans, expanded by 6.2%. On the other hand, the insurance sub-sector has experienced a consistent growth which supported by life and general insurance.
Besides, with several major currencies being traded, there has also been an expansion in the average daily forex turnover. The accommodation & food services sector faced a decline of 2.1% in the third quarter. In tandem with the growth in visitor arrivals, the overall average occupancy rate of gazetted hotels rose by 1.5 percentage-points from a year ago to reach 89 per cent in the third quarter (Exhibit 2.10). In particular, the average occupancy rate of the economy, mid-tier and upscale hotels rose by 3.3 percentage- points, 1.
9 percentage-points and 2.1 percentage- points respectively as compared to the same period a year ago. Nevertheless, the average occupancy rate of the luxury hotel segment, which contributes a higher value-added per room, fell by 1.8 percentage- points in the third quarter as compared to the same period ago.
The fall in the average occupancy rate of the luxury hotels occurred in tandem with a decline in their gross lettings as rooms were taken off the market for maintenance and renovation works. This in turn posed a drag on the value-added growth of the accommodation segment over the period. For the food services segment, overall food & beverage sales volume remained tepid, declining by 0.1 per cent in the third quarter, although this was a moderation from 3.
0 percent contraction in the preceding quarter (Exhibit 2.11). The weak performance of the food services segment was primarily due to the lacklustre performance of restaurants, which posted a 3.4 percent slump in sales volume over the period. By contrast, the sales volume of other eating places grew by 1.2 per cent in the third quarter, offsetting part of the decline in the sales volume of restaurants. How Keynesian model in action helped to increase Singapore’s GDP From the article, one of the largest component in Singapore’s aggregate expenditure, exports, significantly increased due to China’s (one of Singapore’s key market) booming economy in the 21st century that increased its (China’s) overall consumption. This increase in net exports thus increase the overall GDP for Singapore using the expenditure approach to calculate GDP.
3. BUSINESS CYCLEAlthough the GDP had a huge increase in the year 2017 as compared to the year 2016, however within the year 2017 itself we can witness a business cycle. At the start of 2017 (Q1), the GDP was at a an expansion/recovery at 2.9 from the previous trough of 1.2. However as it entered Q2 the GDP growth rate fell to a 2.5( contraction/recession) before it rose back to 3 at Q3 (expansion/recovery) due to the slight rise in unemployment and slight dip in business profits and productivity utilization . And finally for Q4 the GDP growth rose to the highest for the previous years at 5.
4, which was higher than predicted after rising during a recovery. At this point the economy is at its peak and this is due to the country being closer to full employment and business profits as well as production utilization increasing more than the previous years. 4. UNEMPLOYMENTThe unemployment rate tells us the proportion of the labour force who have not found jobs yet, even though they are willing and able to work and are actively looking for jobs. It is the non-availability of jobs for people who are willing and able to work at the prevailing wage rate.
In 2017 quarter 3, there has been lower unemployment rates with fewer retrenchments evident by the 2.1% unemployment rate in September 2017 down from 2.2% in June 2017. This could be due to less people being laid off in the growing manufacturing industry as Singapore GDP has grown 5.2% in quarter 3 of 2017 which will lead to more jobs being available due to growth in different industries which will in turn cause more workers to be hired by companies. There has also been job opportunities in sectors such as finance and insurance, healthcare and professional services to spur employment rates. The unemployment figure of 2.1% of September 2017 in quarter 3 could be due to either structural or frictional unemployment.
Structural unemployment is caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities while frictional unemployment is caused by the normal search time required by workers with marketable skills who are changing jobs, initially entering the labour force or reentering the labour force. The Ministry of Manpower also stated that the unemployment rate would be difficult to reduce in the future due to economic restructuring and mismatch between jobs available and worker’s skills. Seasonal unemployment would not be significant as Singapore would not be affected by weather-dependant jobs caused by the different seasons. However small amounts of seasonal unemployment will still be present caused by festive seasons, example, dragon dance performers.
There would be no cyclical unemployment in quarter 3 of 2017 as Singapore experienced a positive GDP growth rate of 5.2%, thus there is no recession and no cyclical unemployment. Throughout 2017, Singapore had a 12% quarter-on-quarter increase in total jobs available and a remarkable 30% increase in job seekers. This could be due to a change in government policies like employment incentives and improving employability with websites like myskillsfuture.sg that encourage more people to come into the labour force as well as an overall increase in the amount of jobs available in terms of job creation by the government.5. INFLATIONInflation is a sustained and continuous increase in the general level of prices of goods in the economy.
The inflation in Singapore is very minimal despite economic improvement. This means that the increase in price level is very little, but stable. Economic improvement means that there will be a better living standard for the citizens and should that present, inflation should present because a better living standard will mean higher cost of living. However, the small increase in general level prices of goods show us that Singapore is not severely affected by the economic improvement.The CPI index increase by 0.
4% in october as compared to the same month last year. The food inflation is 1.5 percent, while healthcare costs went up 2.2 per cent year on year. The price of non-cooked food has increased. Higher prices of non-cooked food could be resulted from the decrease in supply.
This is known as cost-push inflation. As we know Singapore has no natural resources so our food supply is mostly imported. The increase in the costs of production could lead to increase in the prices of food.This can be caused by the increased in oil prices which is used in the transportation of food.
As for the increase in healthcare costs, the aging population in Singapore explains why is that so. Due to the aging population, there are more elderly in Singapore. As people age, their health deteriorates and require healthcare. This will definitely lead to an increase in the demand for healthcare, which thus lead to inflation.The increase in education costs could be because Singapore is very well known for its education system.
Over the years there are many students who are attracted and decided to study in Singapore. This result in the increase in demand and thus an increase in education costs. As for the tuition fees increase, it could be due to more parents sending their children to tuition as they are afraid that they cannot catch up in school. Research has shown that 7 in 10 parents send their kids to tuition. The reasons for that is because they hope to improve their grades and help them to keep up with the competitive education system. The highest inflation rate in 2017 was in May, where the inflation rate increased from 0.
4 in April to 1.4 in May. However, our inflation rate is still very minimal despite the economic growth.Core inflation excludes the cost of private road transport and accomodation from the overall CPI basket so as to reflect the impact of inflation on individual. This is considered as a more accurate calculation of inflation because not everyone in Singapore has their own vehicles, and not all SIngaporean needs to rent a house.
Thus, core inflation will be more accurate as it is calculating only the living expenses of individual based on what an individual will normally spend on. Headline inflation refers to the overall CPI basket-calculated inflation, which includes the prices of basket of goods, which is what the average household would buy. Headline inflation is not as accurate as core inflation as an “average household” would not cover everyone in SIngapore, for example, the retirees or the high net worth individuals.MAS Core Inflation, which excludes the costs of accommodation and private road transport, was higher at 1.5% in September, compared to 1.4% in August, due to an increase in services inflation. As services are included in our everyday’s life, service inflation would impact all of our lives. When we purchase goods, we are using services provided by the store.
A service inflation will lead to cost-push inflation. When there is a increase in price in the cost of production, it is called cost-push inflation. The supplier of goods will thus have to increase the price of goods increase to cover the increase in expenses of generating goods.