Singapore’s growth will weaken further this year after slowing in 2011, constrained by a “difficult” global environment and government efforts to cut foreign-worker inflow, Prime Minister Lee Hsien Loong said.
Gross domestic product rose 4.8 percent last year, Lee, 59, said in his New Year message released in Singapore yesterday. That compares with the government’s earlier forecast of a 5 percent increase and a 14.5 percent pace in 2010. The economy will expand 1 percent to 3 percent in 2012, Lee said, reiterating a trade-ministry estimate.
“Debt problems in Europe are far from solved,” Lee said. This year “looks like being difficult for the global economy. As a small, open country, Singapore will inevitably be affected,” he said.
Singapore, which uses the island’s dollar to manage inflation, said in October it will slow gains in its currency as it joined Asian nations in moving to shield their economies from faltering growth in Europe and China. At the same time, the island has sought to counter a voter backlash against a surge in immigration by promising to damp the influx of foreigners, a move Lee says will curb expansion.
“The extent of the soft landing in China, the pace of recovery in the U.S. and the downside risks in the euro zone are the three key factors that underscore Singapore’s outlook for 2012,” said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. Slowing the inflow of foreign workers will pose a “constraint” on growth as it raises business costs, he said.
The growth rate Lee estimates for 2011 implies that the fourth-quarter contraction in the economy “will be more severe than what most people in the market expected,” Seah said.
The economy probably shrank an annualized 5 percent in the fourth quarter from the previous three-month period, according to the median of 11 estimates in a Bloomberg News survey. The trade ministry will release the GDP report on Jan. 3.
The MSCI Asia Pacific Index of stocks slumped 17 percent last year as concern Europe’s protracted sovereign-debt crisis will weigh on the region’s growth halted a two-year rally in equities. Singapore’s benchmark Straits Times Index dropped by a similar amount, and its currency weakened 1 percent against the U.S. dollar.
Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait and home to the world’s second-busiest container port, has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts the financial services and tourism industries to cut its reliance on exports.
Lee’s ruling People’s Action Party won the general election in May with the smallest margin of popular votes since independence in 1965 as citizens expressed discontent over the rising cost of living and competition with foreigners for jobs and housing.
Singaporeans also voted for a new president in August and former Deputy Prime Minister Tony Tan, who was backed by Lee and several ministers, won the largely ceremonial post with a margin of about 0.3 percent over his nearest rival.
“Having made a significant political transition, we are all now adjusting to new norms in a changed environment,” the prime minister said yesterday. “We are working hard to tackle our immediate challenges.”
Since the general election, the government has tightened rules on overseas labor and made it more expensive for foreigners to buy property in Singapore.
The island imposed additional taxes on purchases of private residential property in December to curb excessive investment that it said may spur economic and banking-industry risks. Foreigners and corporate entities will have to pay an additional 10 percent stamp duty, the government said Dec. 7.
“The government is committed to keeping homes affordable to all Singaporeans,” Lee said yesterday, adding that more public housing will be made available in 2012. “In the private property market, the additional buyer’s stamp duty will moderate capital inflows and foreign demand, and help to stabilize prices.”
The country, ranked by the World Bank as the easiest place to do business, has cut taxes in recent years to spur investment, prompting companies to hire hundreds of thousands of foreigners to fill positions. More than a third of the 5.2 million population is made up of foreigners and permanent residents, and about half of all new jobs created in 2010 went to workers from overseas.
The island is tightening the number of foreign workers entering the country to a “more sustainable” rate, Lee said yesterday. The government announced in August that it would raise salary thresholds and require better educational qualifications for some non-Singaporean workers.
“Companies are already feeling the pinch,” especially small and medium-sized enterprises, Lee said. “Singaporeans will feel it too, because many foreign workers do jobs that serve citizens. Admitting fewer foreign workers also means forgoing business opportunities and accepting slower growth. This is one reason why we only expect 1 percent to 3 percent growth.”