2006 has, by all accounts been a better year for most companies in Singapore, as compared to 2005 when the economy grew by 6.4 percent. While the actual growth percentage has not been released, the general consensus among professional forecasters in a survey by the Monetary Authority of Singapore (MAS) is that the Singapore economy is expected to grow by 7.8 percent, an affirmation of the 7.5 - 8.0 percent growth forecast by the Ministry of Trade and Industry (MTI).

The sign of an economy that is picking up is evident in many ways. In contrast to the earlier years, a record 124,500 jobs were created in the first nine months of 2006 and unemployment rate fell to 2.7 percent in the third quarter of 2006. Employee turnover rose to 6.5 percent for the first six months of 2006. Amidst a tightening job market, there are calls now for the employer’s CPF contribution to be restored.

Consumer confidence has improved, as observed in the better sectoral performance put up by the retail sector, which grew 4.9 per cent in the third quarter contributed mainly by growth in the apparel, telecommunications and computers, and the supermarkets sub-segments.

To understand the factors that have contributed to the healthy growth in 2006, one need not look further than the fundamentals, which is similar to the evaluation of a company’s performance based on its business model.

As one of the more export-dependent economies in South East Asia, Singapore relies heavily on global market conditions and demand. For the third quarter of 2006, Singapore’s external trade grew 13 per cent, reaching $212 billion in total trade. However, unlike previously where exports were driven largely by a single engine – the electronic sector, Singapore has undergone significant structural adjustment to diversify the economy. The Singapore government has also done much to improve its competitiveness in the last few years.

Today, Singapore has nurtured new growth drivers, namely the petrochemicals, pharmaceuticals, marine engineering, private banking and tourism sectors. In the latter, projects such as the development of the two integrated resorts, as well as the steps taken to develop the private medical sector to capture a greater portion of the 1.3 million people who travel to and within Asia for healthcare reasons are some of the more recent developments towards the drive to bring in 17 million tourists by 2015.

Efforts to disperse the over reliance on the US economy, as well as the emerging economic power of China and India has also helped to mitigate the exposure of the Singapore economy to the performance of the US economy. While the US still accounts for the bulk of Singapore’s external trade in 2006, trade with China and India, currently the world’s top 2 fastest growing economies is expected to ease the over dependence on the US performance.

In terms of manufacturing, the main stay of Singapore’s economic driver, the country has been moving up the manufacturing value chain into knowledge-intensive and technology driven activities.

In 2006, the biomedical manufacturing, transport engineering, chemical, electronics and precision engineering clusters have all performed well, contributing much to the growth for the year. In September, Singapore’s factory output expanded 7.6 percent month on month, beating all forecast. For the first nine months ending September 2006, the increase is even more impressive at 14.3 percent over the same period in 2005.


The Wholesale and Retail sector grew by 11% in the third quarter of 2006. In the Retail sector, increasing visitor numbers and improving consumer confidence have done much to grow this sector. On the 7th of December, Singapore welcomed its nine-millionth visitor, a new all time high in Singapore. On 19 December, Singapore welcomed its first 1 millionth visitor from China, a rapidly growing market. Singapore also expects to reach another new record in terms of total tourist expenditure of $12 billion for 2006.

This growth and the rebound in the retail market has resulted in better top-line performance in 2006 for retail companies such as Isetan, C.K. Tang, Cortina and The Hour Glass.

Another sector that has benefited from increasing tourist numbers is the hospitality industry, which saw a 28 percent increase in total hotel room revenue to $396 million in the third quarter. Among those that have benefited in this sector are Hotel Royal and Amara Holdings, which saw turnover growth increased by 46.89 percent and 38.21 percent respectively.

As for construction, the sector has for the second consecutive quarter been growing from strength to strength from the 0.4 percent in the second quarter of 2006 to 2.3 percent in the third quarter. Among the top three construction companies that have achieved above 50 percent growth in 2006 are Magnus Energy Group (66.7 percent), Permasteelisa Pacific Holdings (64.7 percent) and Hiap Seng Engineering (62.8 percent).

Looking at 2007, the growth is expected to be influenced by a few factors; externally - by oil prices, by the US economic growth and by global demand for electronic products; internally - by the economic spill over from the 2 Integrated Resort projects into the local economy.

Oil prices will remain a key factor affecting the performance of the Singapore economy in 2007. Strong growth in the global transportation industry and demand for power, especially from China is expected to keep oil prices on the high side with world oil consumption expected to rise to 86.2 million Barrel Per Day (1.8% growth) in 2007.

As the pace of growth continues to slow down in the US, attributed in part by correction in the housing market, the demand for exports from Asia and in particular Singapore is expected to be adversely affected. This is expected to be mitigated by stronger growth in China and India in 2007. In China, despite tightening measures, the economy is expected to grow at 9.9 percent while India is expected to grow by 10 percent in 2007, driven by private consumption. As trade with both these countries increase, the expected strong growth in these 2 countries is likely to bring positive impact to the Singapore economy.

Another market that is likely to have an influence on the Singapore economy in 2007 is the European Union, where the stronger Euro is expected to spur domestic demand for Asian exports to the region. DP Information Group’s data on the 2006 Top Public Listed Companies (PLC500) shows that turnover generated from Europe accounted for 6.86% ($14,706,103,693) of the total turnover generated by the PLC500 companies. In comparison, US market accounted for 8.31% ($17,839,521,364) of the combined turnover.

As for the Electronic sector, which is heavily influenced by performance in the semiconductor sub-segment, increasing inventory levels across the supply chain is expected to slow the demand for semiconductor in the first half of 2007. In the longer run, semiconductor sales are expected to pick up, fuelled by strong consumer demand for PC memory and consumer electronics like MP3 players and 3G handsets.

The outlook for the biomedical manufacturing, transport engineering, precision engineering and the chemicals clusters is expected to remain rosy.

In 2007, domestic demand is likely to play a bigger role in the growth of the economy as consumer confidence improves further as a result of employment and real wages growth. 

Construction investment is also forecasted to increase, in the wake of activities from the integrated resorts (IRs) projects at Sentosa and Marina Bay.

Work on the “Marina Bay Sands” has already started while Genting is expected to start the process of hiring engineers and contractors in the first quarter of 2007. In the longer run, the Sentosa project is expected to generate an estimated $2.7 billion in value-add - about 0.8 per cent of Singapore's gross domestic product (GDP) - and 30,000 jobs in 2015.

As for Singapore’s Small and Medium Enterprises (SMEs), the Sentosa project, is expected to benefit those in the support services industry, generating some $100 million to $200 million in revenue in the areas of hotel supplies, sanitation, security and maintenance. On the job front, Genting International is projected to generate employment for up to 10,000. 

In addition to bringing in direct benefit to the construction industry, the IR projects are also expected to bring growth to companies in the property sector. High-end property prices, especially those around the Marina area are already seeing huge jumps in prices, fuelling anxiety over the possibility of a property boom bubble. 

By most estimates, the growth outlook for 2007 is expected to moderate between 5.0 and 6.0 percent. However, there are 2 wildcards that can derail the economic growth - an Avian flu outbreak and the possibility of a terrorist attack. Barring that, the economy is expected to continue to grow, albeit at a slower pace in face of the high oil prices and slowing growth of the US economy.

Article Contributed By DP Information Group
www.dpgroup.sg