MTI Raises Estimate of Medium-Term Growth Potential to 4 - 6 Per Cent

MTI RAISES ESTIMATE OF MEDIUM-TERM GROWTH POTENTIAL TO 4 - 6 PER CENT

The economy has the potential to grow by an average of 4-6 per cent per annum over the next 5-10 years[1]. This reflects the effects of economic reforms over the last 5 years which have enabled actual growth to average 6.1 per cent per annum, exceeding the 3-5 per cent medium-term potential estimated by the Economic Review Committee (ERC) in February 2003.

The new estimate of growth potential is based on labour force growth of 1.5-2.5 per cent and productivity increase of 2.5-3.5 per cent.This is higher than the ERC’s projected labour force growth of 1-2 per cent and productivity increase of 2-3 per cent.

Higher Productivity

The economy’s diversification into higher value-added industries and influx of new capital investments will increase productivity growth.Economic restructuring in an increasingly competitive environment has also helped to enhance efficiency.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.

Higher Labour Force Growth

Healthy economic conditions and increased labour market flexibility have helped to increase the labour force participation rates of women and older workers. In 2006, 65 per cent of the resident working-age population were economically active, up from the 64.1 per cent in 1996.Higher inflows of expatriate talent have also contributed to the underlying increase in labour force growth.

Favourable External Environment

The external environment over the next 5 years is expected to be favourable, increasing the likelihood that Singapore’s growth potential is realised. While the US, EU and Japan will continue to be important external drivers of demand, the rise of China and India will provide additional boost to growth. In addition, the Southeast Asian countries have recovered from the Asian financial crisis and are returning to a path of growth and stability.

Indeed, if external conditions remain favourable, Singapore should be able to achieve a growth rate at the upper end of the 4-6 per cent range over the next 5 years.

MINISTRY OF TRADE AND INDUSTRY
20 AUGUST 2007

[1] While this range is not a forecast for any given year, it serves as a gauge of the potential our economy can sustain over the medium term.