Singapore Economy 2007

Singapore, FT.com
Wed Jan 03 18:30:24 EST 2007

The wages of sin is growth. The decision by Singapore's government to abolish bans on gaming and bar-top dancing seems to be paying off. Fuelled by tourists and shopping and in spite of a slowdown in electronics exports, growth in the island state exceeded expectations, reaching 5.9 per cent year-on-year in the fourth quarter. In 2006 as a whole, the economy is estimated to have grown 7.7 per cent, a rate probably only surpassed in Asia by India and China.

Such an achievement is owing, in part, to efforts to reduce the economy's dependence on electronics and biotechnology exports. Large budget surpluses mean the state can assist as well as direct these efforts, for example by releasing land for development. The need for diversification is pressing. Goods and services exports are equivalent to about 2.5 times gross domestic product – and half go to the US, where demand is slowing. In addition, like its neighbours, Singapore is grappling with unwanted currency appreciation and with the resultant loss of competitiveness against China.

The diversification path chosen looks a profitable one. After the government awarded licences last year, Las Vegas Sands (NYSE:LVS) and Genting are spending an estimated US$6.5bn building two mega-casinos. Tourist arrivals – a record 9.5m in 2006 – are targeted to increase to 17m by 2015. By then, DBS Vickers estimates, the resorts will each be adding US$1.8bn, or 0.8 per cent, to GDP. The projects are spurring both job creation and a boom in construction and property. These in turn are underpinning consumer demand and the surging equity market, up 27 per cent in 2006.

Singapore may end up shedding its traditional straight-laced image as a result of these changes. But on many fronts, not least in order to maintain strong economic growth – another Singaporean tradition – such a sacrifice may be more than welcome