Recent Trends In Singapore's Real Gross Fixed Capital Formation

This article examines recent trends in Singapore’s real gross fixed capital formation (GFCF). We find that the decline in Singapore’s real GFCF in 2014 and 2015 was mainly due to a contraction in private GFCF, which could in turn be partly attributed to a decline in private machinery & equipment (M&E) investments. Factors that may explain the decline in private M&E investments include heightened global economic uncertainty, the cyclical downturn in manufacturing, and the shift towards services in the Singapore economy. Using an error correction model, we find that global economic uncertainty was the main contributor to the decline in private M&E investments in Singapore in the last two years, although the latter two factors also contributed to the weakness.

After ten years of growth, real GFCF contracted in 2014 and 2015, mainly due to a decline in private GFCF

Real GFCF contracted by 2.6 per cent and 1.0 per cent in 2014 and 2015 respectively, predominantly due to a fall in private GFCF (Exhibit 1). The weakness in GFCF is of concern for two reasons. First, it weighs on GDP growth in the short-term. Second, a prolonged decline in capital investments would reduce the economy’s capital intensity (i.e., capital-labour ratio) and could affect our productivity performance in the longer term.

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