Singapore's Economic Growth Trend and Progress on Productivity and Innovation Adoption

60 Ms Foo Mee Har asked the Minister for Trade and Industry (Industry) whether he can provide an update on the state of the Singapore economy including progress on productivity growth and the country's traction in its pivot towards innovation and technology as the next phase of development.

Mr S Iswaran: Based on advance estimates, the Singapore economy grew by 1.8% on a year-on-year basis in the fourth quarter of 2016, faster than the 1.2% growth in the previous quarter. Growth was supported primarily by the recovery in the manufacturing sector. For the whole of 2016, the economy expanded by 1.8%, slower than the 2% recorded in 2015.

For this year, the Ministry of Trade and Industry's (MTI's) current assessment is that Singapore's growth should pick up slightly but remain modest. Although global growth is projected to improve marginally, the elasticity of trade to global growth is likely to remain weak due to factors, such as the slowdown in investment growth in major advanced economies and China, as well as insourcing trends in China. This suggests that external demand for Singapore and regional countries may not see a significant uplift this year. Nonetheless, there are bright spots in the economy, such as the education, health and social services, and information and communications sectors, which are likely to continue to see healthy growth. On balance, MTI expects the Singapore economy to grow by 1% to 3% in 2017.

Ms Foo Mee Har has also asked for an update on our productivity performance. As productivity is highly pro-cyclical for a small open economy like Singapore, we should consider our productivity performance over a longer time horizon. Between 2009 and 2015, productivity, as measured by real value-added per actual hour worked, grew by 2.7% per annum.

In more recent years, productivity grew at a slower pace of 0.6% per annum from 2011 to 2015. The slower growth was partly due to the sluggish external environment, which had dampened productivity growth not just in Singapore but also in other developed economies. Our productivity growth has also been weighed down by the weak productivity performance of domestically-oriented sectors, such as construction and food services, as well as a shift in employment towards these sectors. Notably, the productivity of domestically-oriented sectors contracted by 0.5% from 2011 to 2015, even as that of the outward-oriented sectors grew by 2.4%.

The Government has been working with the tripartite partners to raise productivity across sectors under key initiatives, such as the Industry Transformation Maps. Our productivity measures are gaining traction. For example, construction site productivity growth improved steadily from 0.3% in 2010 to 2% in 2015. More companies are also heeding the call to raise productivity. According to the Singapore Chinese Chamber of Commerce and Industry's annual small and medium enterprises (SME) survey, the proportion of SMEs taking steps to raise productivity has increased from 84% in 2013 to around 88% in 2016.

Promoting research, innovation and enterprise (or RIE) is another key plank of our strategy to maintain Singapore's economic competitiveness. Under the RIE2020 plan, $19 billion has been set aside to spur RIE in Singapore between 2016 and 2020. This includes support for companies to establish and expand corporate research laboratories in Singapore, as well as equity financing for technology startups. Our RIE efforts have gained momentum over the years. For instance, private sector expenditure on research and development (R&D) reached $5.2 billion in 2014, the highest level to date. Of this, expenditure by local enterprises saw the most rapid growth, increasing by 23% from $1.4 billion in 2013 to $1.7 billion in 2014. The number of high-tech startups has also risen from 2,700 in 2005 to 4,800 in 2015.

To position Singapore for our next phase of growth, the Government will continue to push ahead with our restructuring efforts, with a strong emphasis on productivity and innovation.