By Lee Kok Fatt*
3 Jan 2018
It is useful at the start of the year to evaluate probable developments in the coming months and to plan accordingly, even though we will never know for certain what the future holds.
This process is valuable in that it forces us to consider what is uncertain and not to be taken for granted, while understanding the fundamental realities so that we can position ourselves better for eventualities.
Let’s start by reviewing the past year. On New Year’s eve, Prime Minister Lee Hsien Loong announced that the economy grew by 3.5 per cent for the whole of 2017.
The better-than-expected growth in 2017 was driven by the improvement in overall global conditions as oil prices stabilized, political risks levelled out and trade expanded more than expected.
This must be the case since two thirds of the goods and services produced in Singapore are exported.
But the extraordinary feat underlying the 2017 economic performance was the likely fall in Singapore’s total employment from 2016.
Foreign employment was expected to have fallen more than the increase in local employment while the economy was growing – the first time this has happened since 2007 when Singapore began to slow down the rate of foreign worker inflow.
Productivity growth in terms of value added per worker will then exceed GDP growth, also for the first time in the last decade.
These numbers underscore the non-trivial achievements of Singapore’s restructuring efforts which have enabled our businesses in growth sectors to meet the rising global demand with fewer workers.
Workers displaced from shrinking sectors such as marine and construction were also trained and placed into the growing sectors to meet their needs.
Going into 2018, our economic prospects, which continue to be determined by the global environment, look optimistic.
Among our major trading partners, the developed economies of the United States and European Union are expected to maintain their strong growth momentum, which will help offset an anticipated slowdown in China.
In the region, the growth among our ASEAN neighbors is forecast to remain strong, especially in Indonesia, Philippines and Thailand where investment and consumption levels are rising.
Notwithstanding the positive global outlook in 2018, the expected growth is fragile.
In North East Asia, tensions over the North Korea nuclear program are growing, as is the possibility of war, even though it is still remote at the moment.
In financial markets, the end of easy money beckons, as the Federal Reserve starts shifting its focus to inflation risks and investors become more jittery over mounting debts in both developed and emerging economies.
As the world transits to a higher interest rate environment, increased volatilities in the inflated financial and property markets around the world will eventually spill over to the real economy.
Global trade growth could also be derailed if President Donald Trump follows through on his “Make America Great Again” policy.
The implementation of protectionist policies by the largest economy in the world will impact world trade, disrupt global supply chains, and ultimately negatively affect trade-dependent Singapore.
Though overall global growth in 2018 is shaky, firmer growth can be found in niche areas that have good long-term fundamentals.
One example is the insurance sector, which will continue to expand as growing affluence in this part of the world drives up home and vehicle ownership. The trend of increasing insurance premiums against natural disasters is likely to continue as the intensity and frequency of typhoons in the Pacific region increases.
The growth of the insurance sector will have positive spin-off effects on the fund-management sector and professional services such as legal and compliance.
The information and communications cluster is another bright spot. Technological advances in areas such as the Internet of Things and artificial intelligence will feed into various other mature technologies such as payment and cloud technologies to accelerate the digitalization of businesses.
Singapore is investing heavily in the development of digital capabilities to help businesses leverage on technological advances to develop novel business models and innovative services to break into new markets and emerging sectors.
The information and communications sector will not just be an enabler in this national effort, but also an engine of growth in its own right by providing services to the rest of the world.
Domestically, the health and social services sector will continue to grow in tandem with an ageing population. But domestic consumption in other areas may be affected if the expected tax increase is realised this year in the form of personal taxes.
Consumption will be hit even harder if there is a hike in GST instead.
So, what do these mean for us?
Singapore must continue with its restructuring efforts in 2018 to tap into the niche growth areas and be responsive to the shifts taking place in the world economy.
Singapore’s key challenge will be the job-skills mismatch in the labor market.
Our workforce must become nimbler to seize the new openings as they arise. This means investing time and resources into learning new skills and upskilling.
Employees must also be prepared to take on new functions or tasks when offered to do so. Those who do so will be more valuable to current and future employers, and able to cross over to new functions or even another industry altogether when needed.
Though the Ministry of Trade and Industry forecasts growth in 2018 to be in the region of 1.5 to 3.5 per cent, economic disruption is not a remote possibility in a year of tricky economic transitions.
We should not be complacent but continue to enhance our resilience now by diversifying and expanding the repertoire of our skills while we have the time and means to do so.
We can then not only ride the wave of growth but also be better prepared to bounce back in the event of an unexpected downturn.
*Lee Kok Fatt is a director of consultancy and executive education provider Future-Moves Group and the author of “Singapore’s Fiscal Strategies for Growth – A Journey of Self Reliance”. He previously spent two decades in the civil service, including a stint as director of fiscal policy at the Ministry of Finance.
(source:http://www.todayonline.com/commentary/developing-resilience-year-fragile-growth)
