1. Singapore did not enter a technical recession in the third quarter of 2012. Based on advance estimates, the Singapore economy contracted by 1.5 per cent in the third quarter on a quarter-on-quarter seasonally adjusted annualised basis. However, the second quarter GDP growth was better than expected, resulting in an upward revision from the preliminary estimates of -0.7 per cent to 0.2 per cent. The revision was due to new data from the construction sector, which showed much stronger growth than originally estimated in the second quarter. While we have avoided two consecutive quarters of decline, economic growth for the first three quarters of 2012 was lacklustre, at 1.7 per cent on a year-on-year basis.  

2.     The muted economic growth was largely due to the challenging global economic conditions, which slowed our exports growth and caused our current account surplus to decline. Other Asian economies were also impacted by the external headwinds. For example, for the first half of this year, the three East Asian economies, South Korea, Chinese Taipei and Hong Kong, saw total exports contracting by 0.7 per cent. Their current account surplus over the same period also declined by US$147 million, compared to the first half of 2011.

3. Despite the sluggish economic performance, Singapore remains internationally competitive. In the 2012 World Economic Forum’s Global Competitiveness Index, Singapore maintained its ranking at the second position. In addition, according to a recent report by the Economist Intelligence Unit, Singapore is the most competitive city in Asia, and third globally after New York and London. 

4. Amidst the weak economic environment, the government is mindful of the challenges faced by businesses and has calibrated the pace of economic restructuring to a rate at which businesses can adjust. For example, the increase in foreign worker levies will be implemented in several phases from 2010 to 2013, while companies have also been given up to two years to comply with the new Dependency Ratio Ceiling requirements, which came into effect on 1 July 2012. Furthermore, measures have been put in place to provide support to companies, especially SMEs, to raise their productivity to cope with the tighter manpower situation. These include tax credits to encourage productivity and innovation related expenditures, as well as funding support for employee training. Over the medium term, the economic restructuring efforts to raise productivity and reduce reliance on foreign manpower will help to sustain Singapore’s economic competitiveness.

5. The strengthening of the Singapore dollar is a key macro-economic policy tool to keep inflation in check over the medium term. The Monetary Authority of Singapore recognises the need to strike the right balance between ensuring exporters are not unduly hurt by a stronger currency in the short-term, and capping  underlying price and cost pressures in the economy. Notably, the exchange rate cannot be used as a tool to manage Singapore’s export competitiveness. Over the longer term, competitiveness can only be achieved through higher productivity and innovation such as creating new products that the market demands. The trend appreciation of the exchange rate is in line with our strong economic fundamentals. It keeps inflation low and stable, which helps to preserve the purchasing power of Singaporeans’ income and savings. It also provides a stable and conducive environment for businesses to undertake long-term investments, thus enhancing competitiveness and providing the basis for sustained quality economic growth for Singapore. 

6. Given that Singapore’s labour market remains healthy, with strong employment creation and a low unemployment rate, there is no immediate need for the government to step in with measures to cushion the economy from the slowdown in external demand. However, the government will continue to keep a close watch on developments in the global economy and stands ready to respond when appropriate.