Economic Analysis - Positive National Day Rally Plans Not Without Challenges - NOV 2017

BMI View: PM Lee ' s national day rally speech highlights the Singapore government ' s longer term plan to raise productivity through improving early childhood education, combatting diabetes, and improving connectivity through the Smart Nation initiative. While the government is likely to face challenges in overcoming these structural issues, the government's success would present upside risks to our forecast for real GDP to average 2.7% annually over the next decade.

During Singapore's national day rally speech, Prime Minister Lee Hsien Loong highlighted three longer term issues that the government is seeking to tackle as part of its broader development objectives. These three plans, (1) improving early childhood education, (2) combatting diabetes, and (3) improving connectivity through the Smart Nation initiative will be positive for the city-state's ongoing efforts at improving productivity. We believe that the government is likely to face considerable challenges in overcoming these structural issues, with diabetes being a lifestyle disease and Singapore continuing to face structural and regulatory issues in the rollout of its Smart Nation initiative. However, should the government prove successful, this would present upside risks to our forecast for real GDP growth to average 2.7% annually over the next decade.

Improving Preschools To Boost Future Productivity

Singapore has one of the best education systems in the region and the government is continually adjusting the system to ensure that it is able to meet the future needs of the economy. As such, we believe that efforts to strengthen the early childhood education sector will bode well for future productivity as the government seeks to establish educational foundations early. As part of its plans to improve the system, the government has established the Early Childhood Development Agency (ECDA) to coordinate efforts to develop the preschool education system by bringing together the various stakeholders such as ministers and preschool operators. The government will be spending SGD840mn on preschools and this will double to SGD1,700mn by 2020.

High Score Reflects Continued Efforts To Improve Education System
ASEAN - Labour Market Risk Score, Out Of 100

We believe that the government's plans to improve the quality of education through improved training and higher salaries for preschool teachers are likely to reap considerable results. The quality of Singapore's formal education system is partly due to the high calibre of its teachers and the government is proposing to establish a similar training system for preschool teachers. Singapore scores well on our labour market risk index at 74.9 compared to the regional average of 54.9 and continued government investment in education should enable the labour market to continue to meet the needs of the economy.

Efforts To Combat Diabetes An Uphill Task

The government is also seeking to improve the health of workers by tackling diabetes. According to Lee, one in nine Singaporeans has diabetes and poses a considerable problem for older people and increasingly, younger Singaporeans. We believe that efforts to combat diabetes will help raise productivity through improving the health of the workers. While the government has not rolled out concrete plans as to how it plans to encourage a healthier lifestyle, we expect that this initiative will be part of a broader ongoing efforts aimed at improving the health of the population such as the National Steps Challenge and the Healthier Dining Programme. In addition, a healthier population would also be positive for the government's fiscal position, with our Pharma team forecasting healthcare spending to increase to 4.4% of GDP in 2026 compared to 2.8% of GDP in 2016 as the population ages.

Productivity: The Marathon
Singapore - Labour Productivity, % chg y-o-y
BMI, Bloomberg

Smart Nation: Much Potential, But Hurdles Remain

Lastly, Lee took the opportunity to once again highlight Singapore's Smart Nation initiative which seeks to take full advantage of IT comprehensively to create new jobs, new business opportunities, and to make the economy more productive. While our Telcos team notes that Singapore has a number of key factors that will make it a frontrunner in 5G and facilitate uptake, this will only happen once the technology is commercialised (see ' Singapore To Be A Frontrunner On 5G ' , May 30). However, Singapore continues to face structural and regulatory issues that limit the development of Smart Nation.

The city-state has too many different e-payments schemes and systems that are not interoperable and this has stymied the development of the electronic payment eco-system. Lee noted that Singapore's regulator, the Monetary Authority of Singapore (MAS), is seeking to integrate the different systems into one, leading to the creation of a single unified terminal to read different cards. However, the republic continues to lag behind other countries such as China and South Korea in the e-payments market, suggesting that more work needs to be done to achieve the government's Smart Nation goals. Singapore is also starting to build its own network of sensors and CCTVs to enable the more efficient collection of big data.

Furthermore, the republic lacks the necessary skilled labour to undertake such projects. During his speech, Lee noted that there was a worldwide shortage of engineers, programmers, data analysts, and technicians and spoke of the need to build up Singapore's talent pool. While we do not doubt that the government will undertake the necessary actions to develop a homegrown talent pool while seeking to attract foreign talent, developing the necessary skills will take time and could delay the various Smart Nation initiatives.

Macroeconomic Forecasts (Singapore 2013-2019)
Indicator 2013 2014 2015e 2016e 2017f 2018f 2019f
e/f = BMI estimate/forecast. Source: National sources, BMI
Population, mn 5.36 5.45 5.54 5.62 5.71 5.79 5.87
Nominal GDP, USDbn 299.4 292.8 278.0 277.4 306.9 328.9 354.6
GDP per capita, USD 55,858 53,749 50,216 49,339 53,753 56,786 60,426
Real GDP growth, % y-o-y 5.0 3.6 1.9 2.0 2.2 2.5 2.8
Industrial production, % y-o-y, ave 1.7 2.7 -10.0 9.9 1.3 1.8 2.3
Consumer price inflation, % y-o-y, ave 2.4 1.0 -0.4 -0.2 1.0 2.3 2.5
Consumer price inflation, % y-o-y, eop 2.3 -0.1 -0.6 0.2 2.0 2.5 2.5
Central bank policy rate, % eop 0.00 0.00 0.25 0.50 1.00 1.50 2.00
Exchange rate SGD/USD, ave 1.25 1.27 1.37 1.38 1.38 1.34 1.32
Exchange rate SGD/USD, eop 1.26 1.33 1.42 1.45 1.35 1.32 1.29
Budget balance, SGDbn 4.7 5.2 -4.8 4.1 2.5 2.2 1.9
Budget balance, % of GDP 1.2 1.3 -1.2 1.0 0.6 0.5 0.4
Goods and services exports, USDbn 579.0 577.6 516.7 511.4 522.3 562.9 603.9
Goods and services imports, USDbn 508.8 502.4 438.1 434.6 443.6 479.2 516.1
Current account balance, USDbn 54.1 58.8 57.6 56.5 57.2 60.1 62.5
Current account balance, % of GDP 18.1 20.1 20.7 20.4 18.6 18.3 17.6
Foreign reserves ex gold, USDbn 273.1 256.9 247.7 246.6 258.9 271.8 285.4
Import cover, months 6.4 6.1 6.8 6.8 7.0 6.8 6.6
Total external debt stock, USDbn 1,182.8 1,179.6 1,106.8 1,094.7 1,084.4 1,080.0 1,078.3
Total external debt stock, % of GDP 395.0 402.8 398.2 394.6 353.4 328.4 304.1
Crude, NGPL & other liquids prod, 000b/d 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Total net oil exports (crude & products), 000b/d -1,215.1 -1,267.1 -1,280.0 -1,286.6 -1,293.1 -1,295.8 -1,298.4
Dry natural gas production, bcm 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Dry natural gas consumption, bcm 9.4 11.1 11.1 11.2 11.5 12.0 12.0