Singapore's Economy Contracted in 2015 but Remains in Good Standing

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According to government figures, Singapore’s economy grew 2.0% in 2015, a shortfall from 3.3% seen from 2014, according to CNBC. Retail trade and wholesale added the most growth, but failed to offset the city-state’s fall in manufacturing output. Analysts expect the economy to expand anywhere from 1.0% to 3.0% in 2016.

Singapore is one of the better performing economies in the world market, but it cannot escape the international economic downturn and lower oil prices. Growth in Q4 produced better-than-expected results, but manufacturing output receded 4.9%, and trade contractions will stifle further economic progress.

Singapore relies heavily on trade, but China’s downturn and a slowdown in international demand forces officials to maintain stimulus efforts.

Room for Adjustment

The Monetary Authority of Singapore intends to preserve its current stimulus policy, but more easing may be necessary. Non-oil exports declined at its most dramatic level in three years at the beginning of 2016, mostly stemming from China’s slow growth. China is one of Singapore’s largest export destinations, but the service sector provided the city-state with a solid buffer against steep decline.

Singapore will have to adjust its economy as China shows no sign of exponential growth, and the Middle Kingdom’s lackluster performance is a major sign that its economy is transitioning to a service-based system.

Singapore’s High Rankings

The core strength behind Singapore’s economy is its friendly investment atmosphere, ranking as one of the least corrupt economies on the planet, and it is one of the most liberalized markets on the world stage. Unlike many countries, Singapore does not require foreign companies to partner with local firms, and Singaporean and foreign companies share the same treatment under the law, notes the U.S. State Department.

Moreover, the government does not conduct a strict screening process for outside companies, and the court system retains a business-friendly slant as well, as Singapore ranks the top spot for adhering to contract agreements.

Singapore’s pro-business image has made this small city-state into one of the crown economic jewels of Asia, and even though FDI may decline due to uncertainties in the world market, investments have expanded in certain areas, especially real estate. Overall property investments shot up over 39% in Q4 of 2015 compared to the same quarter in 2014.

Additionally, the World Bank pegged Singapore as the number one place for ease of doing business as of 2015, while winning top rank for protecting minority investors that same year. The city-state edged to the first slot for the issuance of construction permits, which partially explains construction growth of 4.9% year-on-year, a factor that boosted the economy.