Singapore taking steps to reverse structural cooldown

Since growth has cooled.

Singapore’s robust economic growth has been an important supporting factor for its credit profile. Between 2000 and 2010, its GDP increased an average 6.2%, much higher than the median rate of 2.1% for Aaa-rated economies, but also one of the most volatile.

According to a release from Moody's Investors Service, since then, growth has cooled, with the economy expanding 2.0% in 2015. However, the authorities are taking steps to reverse a structural slowdown. 

Growth has reached a structural tipping point, said the release. Following years of rapid gains in income levels and output, Singapore faces the challenge of sustaining growth and raising median incomes in a spatially constrained economy with no natural resource base and a limited workforce. The government has been striving to increase productivity through a ramp-up in skills and innovation capabilities, while calibrating its dependence on foreign labor. 

Here's more from Moody's Investors Service:

Shift to services need not arrest productivity growth As in other mature economies, economic progress in Singapore has brought with it a steady fall in the share of manufacturing in GDP, while that of services is rising.

Manufacturing has been a stronger driver of overall productivity in many countries, so this compositional shift could make it more difficult to achieve the government’s targets. But growing interdependence between the manufacturing and services sectors suggests that Singapore's case may be different. 

Growth has converged with and is likely to stay in line with peers Since Singapore already enjoys higher per-capita incomes than most Aaa-rated sovereigns, stimulating labor productivity will be challenging in the absence of a meaningful expansion in the skilled workforce, or labour and product market reforms.

Still, its  growing importance as a regional trade hub and the evolution of its service sector suggest that growth will likely hover at 1.5% to 3.0% over the medium term, in line with peers, although trends will remain highly volatile.