ECONOMIC GROWTH
Singapore has a number of key strengths that support its retail environment. It has a stable political
environment, good quality infrastructure and a business friendly environment. As a result, the
Economist Intelligence Unit (EIU) has ranked Singapore as the best country in the world to do
business
1
in 2015.
Singapore is a hub for international trade and finance, as well as having a significant manufacturing
sector. This focus renders it highly susceptible to changes in the global economic environment. When
the global economy booms, so does Singapore; when the global economy swoons, Singapore
follows. This can be clearly seen in the economic growth of Singapore over the past decade which,
while averaging 6.3% per annum, has experienced high variability. Since the global financial crisis
(GFC), the ongoing Euro crisis, the slow rebound in the United States (US) economy, concerns over
the economy of China and other emerging markets, have prevented Singapore’s growth from
returning to historical trends.
We expected a more significant rebound in the global economy in 2014, and hence a better
performance from Singapore. However, over the course of 2014, only the US really performed to
expectations. Europe continues to work through the impact of the Euro crisis and the governments’
muddled policy response; even now concerns are being raised regarding Greece’s position in the
Euro zone. The Russian economy is experiencing the strains of ongoing economic sanctions
(following its invasion of Ukraine) and a collapse in the oil prices. Abenomics’ early positive impact
on the Japanese economy was quickly undone by an unfortunately-timed tax increase.
As a result, the economic growth of Singapore in 2014 was 2.9%, lower than the 4.4% achieved in
2013. We do not believe that the economic recovery has faded away, merely postponed slightly.
Fundamentally, Singapore’s economy remains sound. It is gradually moving away from a reliance on
lower value manufacturing (such as consumer electronics), and towards more capital intensive and
higher value services such as biotechnology, education and information technology. The policy
environment is expected to remain supportive.
Singapore’s economy can therefore still be expected to respond well to a forecast gradual rebound
in the global economy. The US growth story remains positive. We remain confident that China will
remain a major driver of growth, albeit less so than in recent history. Europe and Russia still have
major question marks, but the re-election of Shinzo¯ Abe as the prime minister of Japan will hopefully
allow for more fulsome economic reform. In short, Singapore’s external sector should continue to see
gradual improvement, supporting on-going economic growth.
Resource constraints remain a key risk for Singapore. Malaysia is positioning itself to absorb excess
demand particularly within Johor Bahru, where land and labour are more plentiful. Relations with
Malaysia continue to improve, which will support economic synergies. However, the Singapore
Government’s limits on inward migration have put pressure on businesses looking for workers, and
we would expect to see some on-going wage pressures as a result. While we do not expect this to
derail the economy, it will certainly impact certain parts of the economy (particularly retail). If the
policy is retained, it will lower the long-term level of economic growth.
EIU is forecasting economic growth of 4.3% per annum over the next five years, a healthy rate of
growth in an established economy.
1 Based on a report by EIU: Business Environment Rankings, Which country is best to do business in?
Independent Retail Market Overview
78 | CapitaMall Trust Annual Report 2014
