World Economy

Singapore Growth Rate Slows as Small Economies Perform Poorly

Singapore Growth Rate Slows  as Small Economies Perform Poorly
Singapore Growth Rate Slows  as Small Economies Perform Poorly

Singapore’s growth rates are slowing, with a range of forecasters marking down their growth estimates. The ministry of trade and industry recently narrowed its forecast 2015 growth rate to 2 to 2.5%, and the Asian Development Bank forecast a growth rate for Singapore of 2.1% for this year.

There is increasing talk of a technical recession–two consecutive quarters of negative growth–this year after a quarterly GDP growth reading of minus 4% in the June quarter, NewsNow reported.

After a sustained period of strong performances by small advanced economies relative to their larger economy peers and a generally effective small-economy response to the global financial crisis, small advanced economy growth rates over the past few years have been distinctly sluggish.

From an average growth rate of about 4% in the 15 years between 1993 and 2007, growth in a 13-strong group of small advanced economies was about 2.5% in the June 2015 quarter.

With a few exceptions, growth rates in each small advanced economy under the International Monetary Fund grouping are lower this year than in 2011. And in many of these economies, there has been a loss of growth momentum over the past several quarters.

 Specific Reasons

In each small country, there are specific factors that can explain part of this slowdown: reduced external demand from Asia and economic restructuring in Singapore; lower commodity prices in New Zealand; the effect of Nokia and Russian sanctions in Finland; or the high Swiss franc in Switzerland.

But an interesting aspect of small advanced economy performance since 2011 is how little performance variation there is across small countries despite these different specific exposures.

Perhaps most obviously, the global export growth on which many small advanced economies are reliant has weakened significantly over the past several years. Indeed, world trade growth was negative for the first half of this year. Lower external demand is exerting a drag on GDP growth across this group. This is clearly apparent in Singapore, with very weak external demand from key export markets reported over the past year.

In addition, global macro conditions have been challenging for many of these economies.

Loose monetary policy in the US, Europe and Japan has placed upward pressure on small-country exchange rates–and has also made it challenging to run monetary policy in a way that fits domestic conditions. And labor productivity growth seems to have weakened across many small advanced economies in the past several years–perhaps partly as a consequence of weaker export growth.

Because such are acutely exposed to global economic developments, this weak performance suggests problems with the underlying strength of the global economy.