GEOPOLITICAL tensions, disruptive events and domestic constraints are three key drivers that will have major implications on Singapore’s economic growth, said Minister for Trade and Industry Gan Kim Yong at the ministry’s annual Economic Dialogue on Friday (Aug 30).
The 16th edition of the event, held at the Shaw Foundation Alumni House in the National University of Singapore, was themed “Growing Singapore’s Economy Amidst Global Economic Fragmentation and Domestic Challenges”.
It was jointly organised by the Ministry of Trade and Industry (MTI) and local universities, for students to gain insights into pertinent economic issues and challenges facing Singapore.
Speaking to economic students, Gan, who is also deputy prime minister, said: “The global and domestic operating environment is expected to become more complex, challenging and constrained.”
First, the space to do business with the world is now facing “tremendous pressure”, noted Gan.
He highlighted the intention of the United States to further tighten export controls on memory chips and chipmaking equipment to China, as well as the growing nationalist and protectionist tendencies in other sectors, such as electric vehicles.
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When asked about managing relations with both countries, he pointed out that the policy of “only taking the Singapore side” has been successful so far – but the pathway is “almost down to a tightrope, and soon it will become a knife’s edge”.
Still, some global issues such as climate change require all parties to work together, and it is “gratifying to see” that the US and China “are now talking”, he said, noting the discussions this week between the US national security adviser and China’s president.
In his speech, Gan added that many economies are also using generous state subsidies for onshoring and near-shoring, and thus diverting investments there.
Meanwhile, Singapore’s own ability to attract foreign investments through tax incentives will be challenged with the introduction of a global minimum tax rate.
Second, frequent disruptions in the operating environment will challenge policy settings and long-term planning assumptions.
For example, politics may lead to shifts in climate policies, said Gan, flagging potential changes that right-wing and far-right European politicians or Donald Trump, if he is elected president of the US, may implement.
Technological advances, particularly artificial intelligence, can also disrupt and reshape major industries, he added.
While these may be good for the economy, governments will face pressure to review regulatory frameworks and continuously upgrade their workforce to keep pace with the changes.
Third, Singapore will face domestic constraints. Gan noted the slowing growth in the resident workforce, the ageing population, and record-low fertility rates, which in turn have implications on the Republic’s ability to grow its economy.
Additionally, he likened navigating decarbonisation to walking a tightrope: moving too fast could make Singapore uncompetitive for investments due to higher costs; moving too slowly may result in failing to meet commitments.
Keeping a close eye on progress
Despite these challenges, Singapore must move forward, Gan said, adding that MTI is looking at whether the city-state can aim to grow not only by 2 to 3 per cent a year – the current average target over the next decade – “but even higher, over the next few years, or even longer than that”.
He outlined three areas through which Singapore will grow its economy: “(pushing) the frontier” on productivity and innovation; expanding trade architecture, including through regional agreements and new plurilateral groupings; and investing in developing a skilled and agile workforce.
In response to questions on trade relationships in the region, Gan noted that Asean’s diversity is a strength in itself, as it prevents competition and offers investors a variety of skills and advantages.
But how member states can move at different paces without leaving others behind must be considered, he acknowledged.
“We cannot be waiting for everyone before we move. Otherwise, the whole of Asean will fall behind.”
This is why it is experimenting with a “variable geometry” format in its Asean Digital Economy Framework Agreement, which is now being negotiated.
Those more ready to tackle the digital economy can do so, while “(keeping) the door open” for others to join later. The framework will also help those that are not yet ready to build capability and capacity, he added.
Gan also emphasised the increasingly important role of economists.
They are key in developing long-term economic strategies, assessing near-term shifts in Singapore’s operating context, and informing policymaking by assessing the potential trade-offs of decisions, he said.
