Singapore’s growth estimates for 2019 have been brought down to 0-1%, by the country’s Ministry of Trade and Industry (MTI). This is significantly lower than the earlier forecast in the range of 1.5%-2.5%. While GDP growth in the second quarter was estimated at 0.1% by the MTI, the GDP growth for the first six months was higher, but not particularly impressive.
Singapore, often cited as a model of economic success in spite of its size, is dependent upon trade, and has been one of the biggest beneficiaries of globalization in recent decades. As a result of the China-US Trade War the economy of the Southeast Asian city state has taken a hit. The turmoil in Hong Kong and the tensions between Japan and South Korea could further accentuate Singapore’s economic challenges.
According to a Fitch report, 25% of Singapore’s exports were bound for mainland China and Hong Kong. Some of the sectors worst hit by the China-US Trade War are the MSME Sector, as well as electronics. Electronics exports dipped by a staggering 26%, year on year, in the second quarter.
The Singaporean PM, Lee Hsien Loong, in his speech on August 18 at the National Day Rally stated that as of now, the Singaporean government did not plan to provide any stimulus, even though many industries have red flagged the country’s economic challenges, and have been seeking a stimulus from the government.
Lee Hsien Loong did state that if the economic situation goes further Southward, he would take necessary steps. If the situation deteriorates further, the PM said the government would ‘promptly respond with appropriate interventions to sustain the livelihoods of our workers’. The last time, in 2009, a stimulus of over $13 billion was provided.
Importantly, one of Singapore’s neighbours, Thailand, which is also dealing with a slow down has announced a stimulus package. This includes tax incentives for small businesses, and assistance to farmers by way of cash handouts, as well as soft loans. Some of the important policy measures which Lee Hsien Loong did announce for workers were, raising of the retirement age from 62 to 65, and re-employment age from 67-70.
While acknowledging the impact of the China-US Trade War and other global developments, Lee Hsien Loong did highlight some of the strengths the city state possesses – especially the fact that it is investor friendly. In 2019, Singapore was ranked number two in the World Bank’s Ease of Doing Business Rankings.
The Prime Minister also made an important point that in terms of drawing FDI in manufacturing, countries like Vietnam and Bangladesh would benefit more from the trade war, since labour is far cheaper in these countries.
Geopolitical priorities of Singapore
Apart from highlighting the economic challenges which Singapore faces from the US-China Trade war, the Singaporean PM yet again articulated Singapore’s foreign policy i.e. emphasis on the need for the city-state to have harmonious ties with both the US and China. This is something which not just Lee Hsien Loong but even other Singaporean leaders including former Prime Minister, Goh Chok Thong have flagged on more than one occasion.
The Singaporean PM highlighted Singapore’s close economic linkages with China which is Singapore’s largest export market, and the fact that the ethnic population of the South East Asian city-state, is majority Chinese.
The Singaporean PM also spoke about close ties with the US in the economic sphere, as well as areas like innovation. Lee Hsien Loong also spoke about the need for US to remain engaged in Asia, and how this has played an important role in stability in the region. Said Loong: “We hope the US will continue to remain engaged in the Asia Pacific. The US’ presence in the region has helped to underwrite regional peace and stability since World War II, and we hope it will continue to remain a presence in the region”.
Singapore’s current economic situation and the speech of the Singaporean PM at the National Day Rally reiterate many points. First, the fact that the impact of US-China Trade war on ASEAN region is complex. For instance, Vietnam, where labour is comparatively cheaper has benefitted in attracting FDI to some extent from the US-China Trade War. Second, it is important for countries excessively dependent upon globalization to redefine themselves significantly and take urgent steps to deal with their economic challenges. Singapore is a perfect illustration of the same. It has immense potential and needs to think out of box to deal with the dramatic transformations in the global economic landscape. Third, while all the attention is focused currently on the economic challenges which Singapore faces, the geopolitical situation too will pose its fair share of challenges. For long, Singapore was able to successfully de-hyphenate its approach on geopolitical issues from its economic relations with countries. In the current situation, where Beijing-Washington ties are going downhill and schisms within ASEAN over China’s stance on the South China Sea issue are rising simultaneously, this may not be so simple.
Image credit: Cherie A. Thurlby, United States Department of Defense. [Public domain], via Wikimedia Commons
The Views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Geopolitics.
New Delhi based Policy Analyst associated with OP Jindal Global University, Sonipat, India. One of his areas of interest is the India-Pakistan-China triangle.