Group Country Assignment-2

Over the decades, Singapore’s GDP growth has remained steady. With a decadal average of 10% growth during 1980-89,
growth rate declined slightly in the following decades to average around 6% during 2010-18. As Singapore is a highly capitalized
and developed economy, maintaining a 6% growth rate showcases a healthy economy as most structural changes have already
taken place. Singapore’s strength lies in its private investment and highly industrialized economy which gave it a competitive
advantage over most other economies. With private gross capital formation averaging around 41% of total GDP during 1980-89,
it still remains moderate at a level of 28% during 2010-18. Due to high personal disposable income, consumption expenditure
also remained stable during the period averaging at 46% during 1980-89 and lowering down to 37% during 2010-18. Net
exports have seen an exponential growth trajectory starting from 1% in the first decade under review and averaging to 25%
during 2010-18. Hence, components of aggregate demand moved in accordance with our expectations with focus on
investments and exports.

Inflation as per the GDP deflator method has shown a steady decrease from 3.2% earlier to 1.16% during this decade. This also
ties up with the increased unemployment story of Singapore due to outsourcing of cheap labor from other countries.
Controlled money supply is also an important parameter in keeping the inflation stable. Contractionary fiscal policy with a
sustained real GDP growth have controlled the inflation rate through the later half of the review period.

As seen from the data obtained from the long run and very long run growth study, we can observe that the Real GDP growth
rate has remained steady over the years with an average of 5-6% every year. The last decade has witnessed a fall in the GDP
growth rate with steady unemployment rate.

Singapore is a highly developed free-market economy majorly due to its open and corruption-free business environment,
judicious monetary and fiscal policies. The country has seen a major rise in net exports since 1980. Now net exports contribute
27% towards the total GDP of Singapore which used to be a negative figure in the 80’s.

Fiscal Policy Stance

Key objectives of Singapore’s fiscal policy are as follows:
• Ensure financial discipline
• Pursue growth
• Redistribute with minimal distortions

Singapore follows a prudent fiscal policy, which helps the monetary policy in promoting sustained economic growth without
inflation. The key reasons for Singapore’s successful fiscal policy are judicious expenditure programmes and fair tax policies.
Primarily expenditure is focused on:
 Education, public housing, health care and national security.
 Building and maintaining world-class economic infrastructure and services.
Development expenditure has accounted for approximately 1/3rd of government expenditure(G) on average over the last three
decades. Over the years the government expenditure towards GDP has remained constant at around 10%. Singapore’s fiscal
policy is directed primarily at promoting long-term economic growth, rather than at cyclical adjustment or distributing income.

Monetary policy Stance

Effects of Money Supply and Fiscal Expenditure on Output Growth and Inflation
Over the last 40 years there is a steady decline in the money growth. It was 14.5% in the decade 1980-90 and the country has
seen only 5.56% growth in the last decade. The fiscal expenditure has grown by 10% in the last decade. With the above change
in the monetary and fiscal policy the country has experienced a steady decline in the inflation and output growth. The rate of
decline in both the output growth and inflation is causal and simultaneous as seen in the graph (next page).
 Inflation & GDP
15.00%

10.00%

5.00%

0.00%
1980-89 1990-99 2000-09 2010-18

Inflation GDP Growth

1980-89 1990-99 2000-09 2010-18

Inflation 3.29% 1.83% 1.47% 1.16%
GDP
10.26% 9.24% 6.98% 6.40%
Growth

Aggregate Demand Components

50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
1980-89 1990-99 2000-09 2010-18

Government Expenditure Consumption Expenditure

Gross Capital Formation Net Exports

Aggregate Demand
1980-89 1990-99 2000-09 2010-18
Component
Government Expenditure 10.83% 8.95% 10.47% 9.87%
Consumption Expenditure 46.22% 42.02% 41.56% 36.62%
Gross Capital Formation 41.49% 34.34% 24.21% 28.03%
Net Exports 1.47% 14.69% 23.76% 25.48%

Money Growth
15.00%
10.00%
5.00%
0.00%
1980-89 1990-99 2000-09 2010-18

Broad Money Growth Monetary Base Growth