Singapore: Market Profile
Major Economic Indicators
- Singapore’s advance GDP growth for Q2 2017 rose by 2.9% YOY, with the manufacturing sector showing the strongest growth.
- Consumer price inflation remained weak at 0.8% YOY in Q2 2017 as housing price continued to fall. The jobless rate is projected to stay low at 2.1% for 2017.
- Singapore’s exports and imports, after falling 5.8% and 5.4% respectively in 2016, recovered in the first seven months of 2017 to show respective YOY growth of 10.9% and 12%.
- In the first seven months of 2017, Hong Kong’s exports to Singapore increased marginally by 0.4% YOY to US$4.4 billion while imports increased by 13.4% YOY to US$20.8 billion.
Current Economic Situation
Singapore’s services sector contributes some 70% of the country’s GDP with the sectors of wholesale & retail trade, business services and finance & insurance being the prime drivers. The industrial sector takes up almost the remaining GDP share, as agriculture contributes to less than 1% of GDP. Construction, electronics, biomedical, petroleum and petrochemicals are the key industry sectors, while precision engineering is also gaining impetus as a driver too.
After expanding by 2% in 2016, Singapore’s GDP growth (advance estimate) for Q2 2017 improved to 2.9% year-on-year (YOY), with the manufacturing sector as the main growth drivers. 2017 GDP growth is projected to stay low at 2.2% amid the uncertain global outlook.
In 2016, Singapore’s goods producing sector (comprising manufacturing, construction, utilities and other industries) accounted for about 24% of GDP. It expanded by 2.8% in 2016 driven by a 3.6% increase in manufacturing output. The service sector grew marginally by 1% in the same period.
In Budget 2016 that was themed on Partnering for the Future, Singapore reiterated the importance of economic transformation through enterprise and innovation, while rolling out a new Industry Transformation Programme. A Business Grants Portal is launched to assist enterprises according to their core business needs.
In recent years, Singapore has been keen to develop its MICE industry (i.e. Meetings, Incentives, Conventions and Exhibitions) as a growth engine for the country. According to the 2016 rankings by the International Congress and Convention Association (ICCA), Singapore retained its top ICCA city ranking in Asia, while its global ranking improved from seventh to sixth place.
With a view to achieving quality economic growth, Singapore has lowered the foreign worker dependency ratio by raising foreign worker levies on low-skilled labour across different sectors over the years. However, the city-state is facing difficulties in sustaining such policy as Singapore needs immigrants to maintain economic growth. Yet, the government announced in Budget 2016 to lower the levy in the construction and process sector and freeze the levy in the manufacturing sector to help retain experienced workers. Foreign Worker Levy is deferred in Budget 2017.
Singapore’s overall unemployment rate was recorded at 2% in 2016. Inflation eased to 0.5% in 2016 and will remain low amid soft housing price.
Singapore's exports dropped 5.8% in 2016 but recovered in 2017 with 10.9% YOY growth of in the first seven months. In 2016, major export items of Singapore included electrical machinery and equipment, machinery, computers and mineral fuels including oil. In 2016, major export markets of Singapore included the Chinese mainland (ranking first), Hong Kong (second place), Malaysia, Indonesia and the US.
Singapore's imports decreased by 5.4% in 2016 and rebounded by 12% YOY in the first seven months of 2017. Major import items included electrical machinery and parts, petroleum products, office machines and telecom equipment. Major sources of imports included the Chinese mainland (ranking first), Malaysia, the US, the EU and Taiwan.
The Chinese mainland was the largest trading partner of Singapore in 2016, accounting for 13.6% of the latter’s total trade, followed by the EU (11%), Malaysia (11%), the US (8.5%) and Hong Kong (7.2%).
As a financial hub in the South East Asia region and one of the major electronics and biomedical manufacturing bases, Singapore welcomes foreign direct investment (FDI) into various industries and provides a number of investment incentives such as development and expensing incentives and corporate income tax exemptions. For more details on investment regulations and incentives in Singapore, please refer to the website of Singapore Economic Development Board.
Based on official statistics, Singapore’s cumulative FDI reached US$914 billion as at end 2015, up 4.1% from US$878 billion from the year earlier. Even larger growth of 12.8% is recorded in Singapore dollar, as the currency dropped by an average of over 7% against US dollar during the year. Top five FDI sources included the US, Japan, the British Virgin Islands, Cayman Islands and the Netherlands. The cumulative FDI of Hong Kong and the Chinese mainland in Singapore reached, respectively, US$35.2 billion and US$14.7 billion as at end-2015. During the year, Hong Kong’s FDI stock in Singapore fell by 10.9% while the Chinese mainland’s FDI in Singapore increased by 17%.
Singapore adopts a liberal trade policy. Very few goods are dutiable or under control. High tariffs are imposed only on liquor, tobacco, petroleum products and motor vehicles.
The country imposes no quota restrictions. Most goods can be imported freely without licences. However, import licences are required for pharmaceuticals, hazardous chemicals, films and videos, arms and ammunition.
Bilateral Free Trade Agreements
Singapore has been active in establishing strategic relationship with its trading partners, typically through concluding free trade agreements (FTAs). Bilateral FTAs that have been effective or concluded include those with China, India, Japan, Korea, New Zealand, Panama Peru, Australia, Costa Rica, Jordan, the US, and Turkey, with ongoing FTA negotiations with Canada, Mexico, Pakistan and Ukraine. China and Singapore signed the China-Singapore Free Trade Agreement (CSFTA) in October 2008 after two years of negotiations. CSFTA is a comprehensive bilateral FTA with trade-in-goods and trade-in-services elements. Under CSFTA, which took effect from January 2009, more than 85% of Singapore exports to China are granted zero-tariff access. Key exports benefitting from the zero-tariff arrangement include petrochemicals, processed foods, and electronics and electrical products.
At the regional level, Singapore together with other ASEAN members have concluded agreements with Australia and New Zealand (AANZFTA), China (ACFTA), India (AIFTA), Japan (AJCEP), Korea (AKFTA).
In November 2015, ASEAN and China concluded an upgraded agreement on ACFTA that expected to raise bilateral trade to US$1,000 billion (from about US$480 billion in 2014) and ASEAN-bound FDI to some US$150 billion by 2020. Aside from trade in goods and services, the upgraded ACFTA deal also covers technological cooperation. China’s Belt and Road Initiative (BRI) will likely help supplement and expedite infrastructure projects in ASEAN, many of which have been funded by banks in Singapore, which has a mature ecosystem of logistics project development and service companies.
Singapore is Hong Kong’s fifth largest trading partner globally and the top trading partner in among ASEAN countries. Hong Kong started to negotiate an FTA with ASEAN in July 2014 with a view to concluding the trade pact in 2017.
In September 2013, Singapore became the first non-Middle East Country to have an FTA with the Gulf Cooperation Council (GCC), which consists of six countries, namely, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. The agreement, known as Gulf Cooperation Council – Singapore Free Trade Agreement (GSFTA), aimed to strengthen Singapore’s growing economic relations and allow 95% of all GCC tariff lines to qualify for tariff-free concessions. The sectors that will be benefited from GSFTA are telecommunications, electrical and electronic equipment, petrochemicals, jewellery, machinery and iron and steel-related industries.
Singapore also signed an FTA with the European Free Trade Association (EFTA) which covers Iceland, Liechtenstein, Norway and Switzerland. Under this FTA 99.8% of tariff on Singapore’s domestic exports to EFTA is eliminated. The European Union-Singapore FTA (EUSFTA) was also concluded in 2012.
The Trans-Pacific Partnership (TPP), a trade agreement signed by 12 Pacific Rim countries including Singapore in February 2016, is now in jeopardy with President Trump pulled the US out of the TPP shortly after his inauguration.
Singapore also participates in the negotiations of the Regional Comprehensive Economic Partnership (RCEP), which is expected to be concluded in 2017.
Hong Kong's Trade with Singapore
Singapore is the ninth largest export market for Hong Kong – it remains the largest trading partner of Hong Kong in ASEAN, despite Vietnam moving up the pack to become Hong Kong’s largest export market in the trade bloc.
In the first seven months of 2017, Hong Kong’s exports to Singapore up 0.4% YOY to US$4.4 billion. Major export items during this period included semi-conductors, electronic valves & tubes (23.1% share, +22.9% YOY), telecom equipment & parts (17.8%, +13.8% YOY), engine & motors, non-electric & parts (5.9%, -21.2% YOY), computers (5%, +1.8% YOY) and electrical apparatus for electrical circuits (4.6%, +19.4% YOY).
On the other hand, Singapore is the third largest import source for Hong Kong. Imports from Singapore increased by 13.4% YOY to US$20.8 billion in the first seven months of 2017. Major import items included semi-conductors, electronic valves & tubes (67.1% share, +13.3% YOY), petroleum oils (other than crude) (8.2%, +63.8% YOY), parts & accessories of office machines /computers (3.7%, +86.1% YOY), telecom equipment & parts (2.7%, -17.9% YOY) and perfumery, cosmetics or toilet preparations (excluding soaps) (1.9%, +36.1% YOY).
Singapore's Involvement in the Hong Kong Economy
Singapore is well represented in the finance, logistics, electronics and information communications technologies and other services sectors of the Hong Kong economy. Prominent examples include the DBS, Oversea-Chinese Banking Corporation (OCBC), United Overseas Bank (UOB), Keppel Logistics, Singapore Airlines, Pacific International Lines, Singapore and Technologies Electronics Limited (ST Electronics). As at end-2015, Singapore’s cumulative investment in Hong Kong amounted to US$38.4 billion, up 3.2% YOY.
Singapore’s companies are widely involved in Hong Kong’s economy. As at June 2016, Singaporean companies had established 40 regional headquarters, 102 regional offices and 240 local offices in Hong Kong.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.