Singapore: Service Sector Maintains Stability While Nation-State Looks for Manufacturing Recovery

Singapore’s economy is based on manufacturing – 25 percent of the gross domestic product (GDP) – and service – over 60 percent of GDP – industries. Its focus on exports and trade also leaves it vulnerable to multiple factors outside its control, such as the ongoing global recession. Singapore, unfortunately, has no choice but to accept this fate because it does not have a large enough consumer base to grow purely on the back of domestic consumption nor is it a low-cost producer on par with China and Bangladesh. What Singapore does have are top-notch facilities, a well-managed port, an internationally competitive workforce, and a government that is focused on long-term growth.

As a result, this nation-state has an excellent chance of rebounding once the global recession ends. Evidence of the validity of this assessment comes from the recent turnaround of the country’s service sector: The government announced that Singapore’s economic growth beat estimates in the October to December period as it expanded 1.1 percent after contracting during the previous quarter. Predictably, this growth was from the country’s service industries – retail, finance and insurance – while manufacturing, which has contracted for three successive quarters, shrank by 10.8 percent in the fourth quarter.

While the news about the services sector is a positive development as it helps Singapore avoid a recession, I’d argue that this just a technical argument. Singapore’s GDP growth, while positive, continues to lag behind projections: the government estimates the country’s economic growth will be 1.2 percent in 2012, lower than the projected 1.5 percent. It remains stuck on the verge of a recessionary precipice and, therefore, nowhere near a solid footing.

True recovery for Singapore will only come after a rebound in the manufacturing sector and that will not be possible without a global economic turnaround or unless the city-state’s manufacturing companies follow the lead of their Asian rivals South Korea and Taiwan, while staying away from the strategic practices of Japanese companies. For the present time, Singapore continues to tread water as it attempts to reach the state of stable economic growth.