July 25, 2014 | SERVCORP
Singapore's economy is undergoing some challenges for the short term because the nation is moving towards higher-value-added industries for long-term upsurges in productivity. However, the country is unable to escape from its dependence on cheap mass production services. To be more specific, the island state for the first six months of 2014 is attempting to move away from manufacturing and other "low-end" industries, so that it could concentrate more on value-added sectors such as pharmaceuticals and biotechnology (which many first-world nations depend upon to raise their own GDP and economy). Because of this transition and the fact that it became so successful because of these low-end industries that growth slowed to a crawl.
Was It Too Much for Too Soon?
While the plan looks good on paper and Singapore still looks like it's prepared to weather the storm in order to enjoy long-term gains, the nation will still have to undergo tepid external or foreign demand. All this is from a nation that built its economy from manufacturing and textile industries. This is the reason why growth is slowing to a drag; they're still in the middle of transition, and the high-end, value-added sectors aren't yet sure if Singapore can create world-level quality goods and services for that specific market yet. Recently released data shows that during the first six months, Singapore's economy contracted 0.8 percent on an annualized and seasonally adjusted basis.
In contrast, in the previous quarter (the 4th quarter of 2013), there was a 9.9 percent expansion. The domestic product grew around 2.2 percent in the first quarter as well, which also comes short when compared to the 3 percent expectations of the economists. The economic data of Singapore has always been volatile even without announcement of such plans, but economists believe it's because of this shift in priorities that the country is having trouble reshaping its economy. On the flip side, if Singapore's plans were to bear fruit and it could compete on the international stage when it comes to high-end sectors, then it would truly be considered one of the heavyweights of the Asian region.
What Singapore Should Expect for the Future
Singapore could make up for everything if its investment pays dividends. However, that's a pretty big "if". Furthermore, Singapore hasn't crossed the Rubicon yet, so if it's not ready to "force" this change towards high-end industries, it can still revert to its tried-and-true industries that allowed its economy to grow and become this profitable. Singapore is and has always been considered a Southeast Asian trailblazer and its plans seem like a good enough reflection of this desire to conquer new horizons, but certain companies like Capital Economics lament that this move to shift from manufacturing to biotechnology means that Singapore's trail-blazing industrialization phase is done.
According to Singapore's research house, they remain mindful that structural changes in the country's economy will act as a limit on medium-term growth, even after there's improvement when it comes to cyclical conditions. They then downgraded their 2014 growth forecast from 4 percent to 3.5 percent in light of recent events and the data regarding Singaporean economic performance during the first quarter of the present year. In short, Singapore is facing short-term "adversity" for a calculated risk that, once it pays off, will ensure that it's well on its way towards first-world country status in the long-term.
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