Singapore: Risk Assessment
Country Rating1
Rating: A1
Business Climate Rating1
Rating: A1
Risk Assessment2
Significant rebound in 2010 and normalisation of the pace of growth in 2011
Singapore's economy rebounded strongly thanks to the recovery of international trade and the expansionary policies that spurred domestic demand. Exports, which represent 210% of GDP, grew strongly, which led to restocking in the manufacturing sector (electronics, engineering, pharmaceuticals, petrochemicals). Household consumption was spurred by several favourable trends - improvement in the labour market, reductions in income tax, and increases in public spending - which thus provided support to retail trade. Moreover, investment rebounded fuelled by vast infrastructure projects and easing credit conditions.
In 2011, the pace of GDP growth is expected to return to normal with the disappearance of the base effect, completion of the restocking process, and gradual re-tightening of economic policies. Nevertheless, domestic demand will likely remain strong, while exports continue to trend up with Singapore selling a growing proportion of the merchandise it produces to Asian neighbours (China, ASEAN member countries). On the supply side, the growth of the manufacturing sector will be less dynamic. However, services (financial, tourism, transport) will outperform again. Coface transaction monitoring records thus continue to reflect a favourable trend on payments. Singapore boasts the best record on governance in Asia thanks to an effective legal system that facilitates debt collection and a high degree of financial transparency.
Strong financial position
Despite implementation of a massive stimulus plan, the fiscal deficit remained limited in 2010. And public sector accounts will remain healthy in 2011.
External accounts continued to show a large surplus in 2010, reflecting the recovery of exports, especially electronics, and the strength of tourism. In this context, foreign exchange reserves have remained high and continue to endow Singapore with the capacity to cope effectively with sudden capital flight.
Property prices, meanwhile, were sharply higher in 2010 amid the abundant liquidity resulting from the massive influx of portfolio investments and the expansionary monetary policy. The management of risks associated with the granting of mortgage loans has proven nonetheless to be prudent and in compliance with regulatory requirements. The exposure of banks to the property sector has moreover remained limited. The risks associated with the bursting of the property bubble have thus also remained limited.
The banking system remains strong thanks to a low rate of non-performing loans, effective supervision, and high solvency and liquidity ratios. Basel III regulations will moreover have little effect on a banking system already well-capitalised and regulated.
Political stability
Prime Minister Lee Hsien Loong of the People's Action Party (PAP) may organise early elections (initially scheduled for February 2012) in 2011 so as to capitalise on the strong economic rebound. The PAP is expected to be able to stay in power, credited with the government's active policy in dealing with the crisis and maintenance of social stability.
Strengths
- Very high quality-competitiveness
- Development of high value-added sectors (chemicals, pharmaceuticals, finance)
- Strong FDI inflows thanks to an advantageous tax regime, political stability and an excellent business environment
- Major exporter of capital in Asia via the public holding company Temasek
Weaknesses
- Economy dependent on foreign demand
- Shortages of skilled labor
- Aging of the population
- Latent social tensions in a context of increasing inequality and rising long-term unemployment among the less skilled