Analysis Of External Final Demand Drivers Of Singapore’s GDP

This article examines the external final demand drivers of Singapore’s Gross Domestic Product (GDP), using data from OECD’s Inter-Country Inter-Output (ICIO) tables.

At the overall economy level, external final demand accounted for 62.5 per cent of Singapore’s GDP in 2018. The most important final demand markets for Singapore were China, ASEAN-5 (i.e., Indonesia, Malaysia, Thailand, Vietnam and the Philippines) and the US. Even as China and India grew in importance as final demand markets for Singapore from 2015 to 2018, the advanced economies (i.e., the US, Eurozone and Japan) remained key sources of final demand for Singapore.

By final demand type, investment demand was the largest external final demand driver for Singapore, followed by consumption demand for services and then goods. Notably, ASEAN-5 was a major source of final demand for all three types of demand in 2018.

At the sectoral level, the different sectors in Singapore had varying degrees of exposure to external final demand. The transportation & storage, manufacturing and wholesale & retail trade sectors were the most reliant on external final demand. On the other hand, sectors such as construction, other services and real estate catered primarily to domestic final demand.

The relative importance of the different types of external final demand also varied across the sectors in Singapore. For example, the manufacturing sector benefited more from investment demand and goods consumption demand in external final demand markets, whereas the transportation & storage and wholesale & retail trade sectors primarily served services consumption demand and investment demand in these markets.

As Singapore is a small economy that is heavily reliant on external demand, there is a need for policymakers to closely monitor changes in the drivers of final demand in key external markets so as to be able to formulate strategies to tap on the growth opportunities in these markets. For instance, the rise of the middle class in the ASEAN-5 economies will lead to higher consumption demand for both goods and services, which will present new opportunities for Singapore’s manufacturing and outward-oriented services sectors. Similarly, sustained investment in infrastructure and other fixed assets in the region will provide opportunities for a range of sectors in Singapore, including the information & communications, manufacturing and professional services sectors.

The views expressed in this paper are solely those of the authors and do not necessarily reflect those of the Ministry of Trade and Industry or the Government of Singapore.

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