MTI Sees Growth At Upper End Of 4-6%

Source : The Business Times, 21 Aug 2007

The economy should be able to grow at the upper end of the newly revised 4-6 per cent trend potential over the next five years if external conditions remain good, says the Ministry of Trade and Industry (MTI).

Thanks to diversification and reforms, the economy now has the potential to grow 4-6 per cent over the next 5-10 years, MTI says, elaborating on what Prime Minister Lee Hsien Loong said towards the end of his National Day Rally speech on Sunday.

Mr Lee revealed that after a review, MTI had raised its estimate of Singapore’s underlying growth from the previous 3-5 per cent range.

But the new estimate is still well below the private sector’s assessment. As BT reported last month, most economists believe Singapore’s trend growth potential has risen to 6-8 per cent, fuelled by an influx of skills and investments.

Economic growth has averaged 7.8 per cent a year in the past three years and 6.1 per cent a year in the past five years, which MTI attributes to economic reforms.

In 2003, the Economic Review Committee projected that labour force growth of 1-2 per cent and productivity increases of 2-3 per cent would drive annual economic growth of 3-5 per cent over the medium term.

But MTI now sees higher increases. It believes the labour force can grow 1.5-2.5 per cent a year, with more women, older workers and expatriate talent in the workforce.

Productivity growth is also projected at a higher 2.5-3.5 per cent because the economy has diversified into higher value-added sectors and attracted new capital investments.

‘Economic restructuring in an increasingly competitive environment has also helped enhance efficiency,’ MTI says. ‘New high-growth sectors like biomedical manufacturing and wealth management and rejuvenated traditional sectors like marine engineering and tourism have also made the economy more resilient and less vulnerable to sector-specific shocks.’

According to MTI, the external environment is likely to be favourable over the next five years, ‘increasing the likelihood that Singapore’s growth potential is realised’.

Apart from the key sources of demand in the United States, the European Union and Japan, the rise of China and India and the revitalised South-east Asian countries will boost growth.

From the late 1980s to the early 1990s, Singapore’s medium-term sustainable growth was seen at 5-7 per cent. This was later pared, officially, to 4-6 per cent as the economy ‘matured’ and subsequently to 3-5 per cent.

Private sector estimates were usually several percentage points higher.