GROSS DOMESTIC PRODUCT

The Singapore economy staged a strong recovery in 1999. After an anaemic 0.4 percent growth in 1998, economic output expanded by 5.4 percent in 1999. Growth was led mainly by the rapid recovery in external demand, which expanded by 6.7 percent after the 4.4 percent decline in 1998.

The increase in the exports of merchandise goods was led by buoyant electronics and chemicals exports. With the pick-up in regional demand, services exports also improved on account of brisker freight and port services and increased tourist arrivals.

Domestic demand rose by 6.5 percent, reversing the contraction of 7.3 percent in 1998. This was boosted by the improvement in consumption expenditure on account of positive consumer sentiments, as well as by the rebuilding of inventories. Capital spending, however, continued to shrink primarily due to the slump in private sector construction activity.

From the sectoral perspective, the manufacturing, transport and communications, and wholesale and retail trade sectors provided the main impetus for growth. Except for the construction and business services sectors, the performance of all other major sectors improved in 1999 compared to a year ago.

Riding on the strength of the global electronics demand and the regional recovery, the manufacturing sector staged a strong turnaround in 1999 to grow by 14 percent. The electronics and the chemicals industries chalked up double-digit growth of more than 20 percent. The former was driven by robust growth in the telecommunication and semiconductor segments, while the latter expanded on the back of strong demand for pharmaceutical and industrial/specialty chemicals from both the US and Europe.

The construction sector contracted by 12 percent in 1999, down sharply from a growth of 4.4 percent a year earlier. This was expected, given the sharp decline of 35 percent in contracts awarded in 1998. Construction demand remained weak in 1999, as contracts awarded fell further by 23 percent to $11.7 billion, led by a sharp fall in public sector contracts.

The transport and communications sector grew by 7.1 percent in 1999, up from 5.5 percent in 1998. Air cargo and the number of air passengers handled grew respectively by 17 percent and 8.7 percent, in line with the improvement in regional trade and tourism. This contrasted sharply with the declines of 3.8 percent and 5.4 percent respectively in 1998. In the sea sub-sector, total sea cargo handled and total container throughput rose by 4.3 percent and 5.3 percent respectively in 1999, compared with -4.6 percent and 7.1 percent in the preceding year.

In line with the swift rebound in the domestic and regional economies, the wholesale and retail trade sector staged a 7.1 percent recovery in 1999, reversing the 4.1 percent decline in 1998. The upturn in the regional economies lifted entrepot trade, and was also a major contributing factor behind the 11 percent increase in visitor arrivals. Domestic demand also benefited from the improvement in consumer confidence. Overall retail sales volume grew by a robust 17 percent, up from ¨C7 percent in 1998.

Similarly, the recovery in visitor arrivals and improving consumer sentiments helped the hotels and restaurants sector expand by 3.7 percent in 1999, reversing the 3.7 percent fall in 1998.

The financial services sector registered flat growth in 1999, compared to -8.1 percent in 1998. The improvement was partly due to the surge in stock market activity over a large part of the year. Reflecting the more upbeat market sentiments on the domestic and regional economic outlook, stock market turnover rose 100 per cent and 110 percent in value and volume terms respectively. Fund management activity also posted robust growth. However, other key segments remained weak. Both the domestic and offshore banking markets contracted in 1999, as loans and advances to both domestic and regional non-bank customers continued to decline throughout the year. In the foreign exchange market, the average daily turnover continued to be weak.

The business services sector grew marginally by 0.1 percent in 1999, slower than the 5.1 percent in 1998. Although computer and related services as well as the professional services continued to do well, growth was dragged down by the weakness in real estate services.

INFLATION

The consumer price index registered flat growth in 1999, reversing the decline of 0.3 percent in 1998. Higher costs of food, miscellaneous items, education and healthcare outweighed lower costs of housing and transport and communications.

EMPLOYMENT

The labour market benefited from the upturn in the economy. Total employment rebounded with a net job gain of 39,900, a sharp reversal from the net loss of 23,400 jobs in 1998. The employment growth was broad-based across all major industries, with the exception of the construction sector. With the pick-up in business demand, the number of retrenched workers shrank by half to 14,600 from a record of 29,100 in 1998. The manufacturing sector accounted for 55 percent of the total retrenchment, mainly from the electronics industry. The relatively higher number of retrenchment compared to pre-crisis period reflected the continual restructuring and consolidation in certain key manufacturing segments, notably in the disk drive industry, where margins have dropped significantly due to keener competition.

Although the quarterly seasonally adjusted unemployment rate was on a downward trend, easing to 2.9 percent in December 1999 from a high of 4.3 percent in December 1998, the average unemployment rate for the whole year of 1999 was 3.5 percent, slightly higher than the 3.2 percent in the preceding year. This was due to the relatively lower unemployment rate in the earlier half of 1998, before the full effects of the economic crisis were felt in the labour market.

EXTERNAL TRADE

Singapore¡¯s total external trade rebounded by 8.1 percent in 1999, a sharp recovery from the 7.5 percent contraction a year ago. Total trade reached $382 billion, back to the level in 1997. Sustained recovery of the crisis-hit Asian economies, together with the strengthening of global demand for electronics, telecommunication and chemical products, led to a 17 percent surge in the second half of 1999, which outweighed a marginal decline of 0.9 percent during the first half of the year. Total trade in volume terms experienced a similar sharp rebound, up 7.4 percent, compared to ¨C6.7 percent in 1998. Export volume rose by 5.4 percent, with domestic exports and re-exports growing by 8.1 percent and 1.6 percent respectively. Reflecting the improved domestic consumption and increased industrial activity, import volume also expanded by 9.5 percent in 1999.

BALANCE OF PAYMENTS

Singapore¡¯s overall balance of payments recorded a surplus of $7.3 billion in 1999, compared with $5 billion in 1998. The overall balance was boosted by an increase in the current account surplus to $36 billion, coupled with a smaller outflow in the capital and financial account. As a result, the official foreign reserves increased to $128 billion as at end-1999, equivalent to 8.2 months of current imports

GROSS EXTERNAL DEBT

As at end-December 1999, Singapore did not have any external debt.

FISCAL POLICY

Fiscal policy seeks to create an environment that promotes a dynamic private sector, generates robust growth and employment, and advances the development of Singapore. Fiscal policy in 1999 remained geared towards these objectives, in support of sustained, non-inflationary economic growth.

Government expenditures focus on the delivery of essential public goods and services, particularly in the key areas of education, housing, economic infrastructure, basic health care and national security. As in previous years, the bulk of expenditures in 1999 were allocated to social and community services (40 percent) and security (34 percent). Economic services accounted for another 18 percent of total expenditures.

Total government expenditure grew from $24.8 billion in 1998 to $24.9 billion in 1999. The slight increase was due to higher development spending ($11 billion), which rose by 4.6 percent over 1998. However, operating expenditure ($13.9 billion) declined by 2.3 percent over 1998, partly because of the civil service wage adjustments in line with the policy of wage restraint.

On the revenue side, the taxation policy in 1999 continued to focus on enhancing our internationally competitive tax structure to encourage corporate and individual entrepreneurship. Supported by the pick-up in economic growth, the government was able to raise sufficient revenue to finance both the operating and development expenditures. Government operating revenue grew by 1.4 percent from $28.2 billion in 1998 to $28.6 billion in 1999. The increase was largely due to increases in income tax, fees and charges, and interest received as a result of higher outstanding loans from the government to statutory boards.

Against a more favorable economic backdrop, the budget surplus for fiscal year 1999 (1 April 1999 to 31 Mar 2000) came up to $2.9 billion, or 1.9 percent of GDP.