Opening Remarks by PS Mrs Ow Foong Pheng for Economic Survey of Singapore 2015

ECONOMIC SURVEY OF SINGAPORE 2015

(24 February 2016)

Opening Remarks

1 Good morning and welcome to MTI.

2 Details of Singapore’s economic performance for the fourth quarter and the whole of 2015, as well as the growth outlook for 2016, are contained in the press release. Let me highlight a few key points.

3 The Singapore economy grew modestly in the last quarter of 2015.

Ø On a year-on-year basis, GDP grew by 1.8 per cent in the fourth quarter, unchanged from the third quarter. Growth was supported by the wholesale & retail trade and finance & insurance sectors. On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded by 6.2 per cent, faster than the 2.3 per cent growth in the previous quarter.

Ø For 2015 as a whole, the economy grew by 2.0 per cent, slower than the 3.3 per cent growth in 2014. Growth was mainly supported by the wholesale & retail trade and finance & insurance sectors. On the other hand, the manufacturing sector contracted by 5.2 per cent, amidst sluggish external demand and low oil prices.

4 I will now turn to the economic outlook for 2016.

5 The global economic outlook has softened since the start of the year, alongside a sharp fall in oil prices and volatility in global financial markets. Global growth is now expected to be only marginally better than in 2015.

Ø In the US, while the growth momentum has weakened in recent months, full-year growth in 2016 is still expected to be slightly better than in 2015. Growth will be supported by improvements in domestic demand. In particular, the strengthening labour market is likely to support private consumption, while improvements in the housing market point to a further recovery in residential investments.

Ø Growth in the Eurozone economy is expected to pick up slightly in 2016. The modest pace of recovery is underpinned by an improvement in the unemployment situation in most of the region’s economies. In addition, improving business and consumer sentiments, coupled with the continued easing of monetary conditions, will help to support domestic demand.

Ø In Asia, China’s growth is projected to ease further in 2016, as the economy continues to rebalance away from industrial production and investment-driven growth towards services and consumption-driven growth. Private consumption in China is likely to remain resilient on the back of government measures to bolster the economy, thereby providing support to growth. While most ASEAN economies are expected to see modest improvements in their growth prospects as a result of stronger domestic demand, the Malaysian economy is expected to be weighed down by the weak outlook for commodities.

6 Downside risks in the global economy have also increased.

Ø In China, there is a risk that the economy could slow down more than expected if ongoing reforms lead to a significant drop in demand. In particular, recent developments in financial markets suggest that the introduction of reforms to develop a more market-based financial system may have the unintended effect of causing financial market volatility, which could in turn have negative spillover effects on the real economy if it persists. The impact of the resulting slowdown could also be amplified through the financial system.

Ø With sustained low commodity prices and the beginning of the normalisation of US monetary conditions, regional countries could face sudden and large capital outflows, resulting in added pressures on their currencies and asset markets.

7 Domestically, while sectors such as finance & insurance and wholesale trade are likely to provide support to growth, the outlook for the manufacturing sector remains weak. First, even though global growth is expected to improve, the continued slowdown in China, the services-driven nature of growth in the US, as well as the trends of in-sourcing in China and the US, may mean that external demand for our exporters may not see a significant boost this year. Second, lower oil prices have weakened the prospects for new rig orders for firms in the marine & offshore segment, and heightened the risks of further deferments and cancellations of existing orders. There could also be negative spillover effects on firms in the precision engineering cluster that support the oil & gas industry.

8 Furthermore, prospects for the construction sector have weakened on the back of the drop in contracts awarded in 2015 and continued sluggishness in private sector construction demand. Finally, labour constraints will continue to weigh on the growth of labour-intensive services sectors such as food services.

9 Taking into account the above factors, and barring the full materialisation of the global downside risks highlighted earlier, the Singapore economy is expected to grow at a modest pace of “1.0 to 3.0 per cent” in 2016.

10 Before the panel and I take your questions, I would like to take this opportunity to draw your attention to the feature article on “Productivity and Wage Growth in Singapore” in this edition of the Economic Survey of Singapore publication. A key finding of the study is that over the past five years, growth in the real average wages of resident workers in Singapore, at 1.1 per cent per annum, had exceeded labour productivity gains of 0.4 per cent per annum. Recent statistics from the Ministry of Manpower also showed that the real median wages for full-time resident workers continued to grow strongly in 2015, at 5.3 per cent.

11 The strong wage growth seen in 2015 in particular may not be sustainable for two reasons. First, given the challenging near-term outlook for the Singapore economy, labour demand may be more subdued this year, thereby leading to more moderate wage growth. Second, as highlighted in the feature article, it may not be sustainable for real wage growth to continue to outpace productivity gains, given the potential negative impact on our economic competitiveness. In order for our economy to remain competitive and wage growth to be sustainable, wages should grow in tandem with productivity over the longer term. As such, it is vital that we press on with our productivity drive so as to ensure that Singaporeans’ wages and living standards continue to improve.

12 With that, my panel members and I will now take your questions.

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