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Economic Conditions of Singapore

Economic Conditions of Singapore

Economic Condition of Singapore

Introduction

Over the past years, Singapore has been confronted with a lot of financial problems, in particular on the failure to realize set goals and objectives. The country planned for an economic growth rate of about 2 to 3 percent per annum, and an economy which does not depend on the foreign labor. This idea has not been realized in the country due to several factors. According to Nomura Global Research Analysis, the shrink in the economy could continue at a percentage rate 2.1%

According to the research, her reduction in the production I the country is expected to continue for the next years, especially because of the fall  in the global growth; the increase in the aging population in the country, and an the tightened financial conditions especially due to the hiking cycle of interest rates of  the United States of America. There has also been an increase in the debt funding, with debt accounting for 78% if the country’s GDP. Therefore, this discussion will focus on the analysis of the factors that hinder the economic growth of Singapore. It will also give the analysis of the possible breakthrough from those financial hindrances.

 Economic Problems Facing Singapore

Several economic challenges affect Singapore. Among these difficulties include:

Long-term GDP potential growth problem

The economy of the country does not have a clear plan to achieve economic growth. This is majorly brought about by the absence of lack of success up to the present which has dampened the growth. The economy has a shrinking rate of 3.8% since the country’s effort to initiate the restructuring of their economy in 2010; the shrinking has regularly continued for the past five years, an indication that the restructuring policies are causing more havoc than good to the economy of the country. There are several reasons for the shrinking growth of the Singapore economy

One of the causes of the shrinking GDP is the falling global economic growth. The world’s economy is in a recession. This can also be seen in the variable rates of interests of the United States of America. There has been a fall in the world GDP growth rate from 2.8% TO 1.8%. This fall is attributed to the general decline in demand for goods and the reduction in the rate of trade between the countries. The drop in the world economic growth rate is also due to the effect of Chinas economic approach, which focuses on a consumption-led approach which leads to a fall in the trade volume (Tupas,  2011). This naturally slows down the rates of economic growth throughout the world, including Singapore.

The second unadoptable fact that affects the Singapore economy is the increased rate of aging population. Due to the low birth rate and the increasing rate of aging, the country has lost its active force has to rely on the foreign workforce. This draws the income from the economy and leads to a negative growth of the GDP. The aging population is also becoming a burden for the country to bear since they consume but produce little. In this case, the government has to spend a lot of money providing services that cater for the old, but do not focus on production of goods and services that would lift their GDP of the country.

There have been continuously tightened financial conditions that have left the country economically deprived. This condition is linked to the fact that 5he Singapore dollar has been weakening. This weakening had been attributed to the fact that the Asian economy is undergoing a crisis, especially with the reduction of trade between the country and the United States of America. The analysis reveals that the Singapore dollar will continue to fall if the current status continues to prevail in the market. Therefore, the shrinking of the economy will still be a matter of concern to the country since no plan that can stop the drop.

The research reveals that the country has a high employment share too little productive sectors in the economy. This, therefore, led to the country sending its income in the recurrent expenses like salaries, but no production takes place. In this case, there is an increased rate of consumption with a low level of production in the country.

Due to the growing rate of aging in the country, there is a tendency to employ the old and unproductive individuals. These people are as well less skilled. Therefore less output is achieved. This factor shrinks the economy and leads to the company reporting losses. The high cost of living due to increased uncertainty in the global economy has resulted in also resulted in the shrinking of the Singapore’s economy. This leaves very little for individuals and firms to invest in the productivity-enhancing capital project. Moving away from this cost of living has not been easy despite the various government schemes to come out of it.

The government effort to expand and enhance the productivity of the firms has not been successful since it has not been spread throughout the country. This un-spread initiation by the government cannot be enough to sustain the economy of the country.  Therefore, most companies still lack the capacity to increase their investments that could expand the economy of the country. Most small firms of the country have been struggling to invest more of their capital in the production of the country to the point of exhaustion (Tremewan, 2016). However, the returns have been so weak and unreliable due to lack of market in the country. This has led them to incur a lot of losses, hence discouraging further expansion of such firms.

The reduction in the foreign demand for Singapore product has made it challenging to restructure the economy of the country. The net export of the country accounts for only 20 to 30 percent of the real GDP of the country, a situation that cannot be enough to boost the country’s GDP. This factor also restricts the firms’ capability to raise prices for goods and services for the export purpose. The weak demand for the country’s product is, therefore, one of the factors that will continue to be a bottleneck to the economy of the country.

Moreover, there is a push by the government to increase the unit labor cost. This has led to companies cost of production tremendously increasing.  In effect, the prices of products raise a situation that is linked to higher inflation or over stagflation. This situation has led to a reduced rate of economic growth of the country, hence, shrinking GDP.

Impact on the society and the economy

The low productivity in the country has an impact on increased debt rates. Currently, the individual and the nation’s debt rate ranges between 75.3 % and 78%. This is dangerous to future economic growth in most productions of the country will be used to settle debts. The future production of the country will be utilized for the purpose of debt; hence unemployment and expansion of production will still be a problem.

The presence of high domestic interest rates has an effect in the property market. This is because; investors will prefer to save rather than to invest. The high interest rates are leads also to difficulties in obtaining loans from the banks for the purpose of investment. Therefore a general down slow of the economy will always be witnessed.

With the low rate of productivity of the country, restructuring process will not be achieved for the next decade, and thus is likely to lead to an extended period of recession in the country. The recession experienced is likely to drain the economy of the country and hence continue to suffer from a low rate of production. Moreover, in the effort to restructure the economy of the country, more fiscal policies are likely to be formed by the government (Easterly,  and Pennings,  2016 ). This will cost the state a lot as it tries to implement the set economic policies.

There is a likelihood that the government is will run small fiscal surpluses, and in the medium term, it will need to raise more revenue. The upper middle-class individuals will be forced to bear a heavy tax burden to finance the fiscal policies that the government will be implementing. This will affect their income and their ability to invest. The economic policies that will be implemented will require a long time for the change to be realized in the country.

Unemployment among the residents

The current economic status of Singapore is one that is characterized by a low rate of production, a high cost of labor per unit and high prices of commodities. This has an effect of increasing inflation in the country. In this case, a significant amount of money will be chasing few goods in the economy. With the little production in the country, few people are likely to be employed; hence there will be an accumulation of high rate of unemployment in the country. This level of unemployment among the residence is also likely to result in little demand for the goods produced in the country, hence weak economic growth, Due to this business cycle, there will increased rate of poverty among the residents of the state, and a general, low standard of living and poor economic performance. Of the country,

In the effort to eradicate this problem, the government is likely to intervene by creating a more job opportunity in the unproductive sectors. This situation may result in a high rate of inflation; hence weakening the country’s the currency of the country against the dollar.

The Economic Policies Implemented by the Government

Several strategies have been used by Singapore to overcome the financial problems that they currently face. Among the known plans that the county has made use of include:

 Establishment of national productivity and continuing education council

This is meant organize the national productivity in coordination with various governmental agencies. This board is expected to collaborate with different business stakeholders to develop continuous learning programs that will improve the skills and create productive professionals in the country, among the sectors identified, including the area of health, and engineering industry (Balassa,  2014). With the improved skills of the citizens, there is a probability that the productivity levels of various companies will be increased due to the increased labor productivity.

Opening the economy

One of the most successful methods that the county has as tried to restructure their economy is to improve the foreign direct investment in the country. The country has become a hub for international communities and private investors to invest in. This has helped to open up the country and has led to more employment opportunities being created. These jobs target the residents of the state with increased skills that they provide in such companies.

The direct investment in the country has an infect of Improving the demand side of the economy since the residents will have enough money to purchase the goods made in the country with increased demand, producers will be encouraged to produce more and expand the economy of the county (Anwar, and Cabuyao, 2015).  With the foreign direct investment in the country, the government will get enough tax to finance the non-productive sectors of the economy, and hence the desired economic growth of the country will be realized.

The spillover effect of foreign direct investment in the country can be demonstrated as follows. It shows the increase in output and a reduction in the prices as a result of the entry if foreign direct investments in the country.

Economic Conditions of Singapore

The shift from AC to AC’ indicates a reduction in the average cost of production as a result of the entrance of the foreign direct investments. With the reduced cost of production, prices of the country will be lowered. A reduction in prices indicates a decline in inflation, resulting in increased employment and improved GDP of the country.

 The use of monetary policies to stabilize the economy

The central bank of Singapore can regulate money supply in the economy to reduce the rate of inflation and the interest rate in general. In this case, the aggregate money demand should be equal to the money supplied by the central bank to balance the economy. With a stable interest rate, the investors will be willing to keep their capital in the investment, hence resulting in an expansion of the economy. Furthermore, the central bank can initiate the use open market operations to balance the money demand and supply in the general economy.

The lowering of interest rates of a country through the use of monetary policies by the central bank will encourage individuals to acquire loans from the banks. The loans obtained will be used for investment. That investment will lead to an expansion of the economy and a general increase in the productivity and employment of the country.  The buying of government bonds and Treasury bill will also ensure that the public has money to invest in economically viable activities that will lead to increased employment opportunities.

Economic Conditions of Singapore

Encouraging international trade

The government can also take the active expansion of their international trading activities. In this case, there is a need to strengthen to focus on export of goods that will lead to a strengthening of the Singapore’s dollar and ensuring that its economy is strengthened. The increased export will give rise to a positive balance of payment, a situation that reflects good economic performance for the country. With a positive balance of payment, the financial injections are much higher than leakages.

Conclusion

The financial status of Singapore that is characterized by an increasing drop in productivity is one that should worry the country. With the factors that affect the production capacity, there is a likelihood that small production will continue to be observed for a log period. The factors like increase aging, high rate of unemployment, the global economic downfall and the rest will hinder the production capacity of the country. Therefore, there is a need for the country to design proper ways that will see the country improving economically, and ensuring that the high rate of reduction or shrinking of the GDP is contained

The effort of the state to change the economic status of the country is to ensure that the country has the correct skilled labor, create productive employment opportunities and ensure that the interest rates in the country are fair enough to encourage investors to put their capital into productive projects. This will promote the expansion of the economy in general and positive growth in the GDP.

Among the policies that should be ensured be introduced by the government are proper manipulation of the monetary policies, the government use of fiscal policies, the encouragement of foreign direct employment I the country and a generals maintenance of a positive balance of payment. There is also need to reduce the rate of debt funding of the economy. This will ensure that the county’s economy remains desired and improve in a tremendous way.

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