THE PATH TO ECONOMIC RECOVERY

When I delivered the Budget Speech last year, it was on a note of caution. The economy was then beginning to pull itself out of its worst recession in two decades. It affected all sectors of the economy. Many companies were wound up and some 100,000 jobs were lost. The various cost-cutting and fiscal measures we implemented in 1985-86 did turn the economy around. But the recovery was uneven and weak. Manufacturing led the growth, benefiting significantly from the improvement in our international competitiveness. This spilled over to the transport and communications sector, which also was boosted by increased price competitiveness. Growth of the financial and business services sector was, at best, modest, with weak domestic demand for loans and sluggish regional economies. On the other hand, the commerce sector continued to shrink, largely because of less entrepot trade and weak regional growth. Construction also remained badly depressed. Thus, the economic recovery in 1986 was lopsided with some sectors rising creditably while others remained in the doldrums.

The year 1987 saw the consolidation of our recovery. Strong international competitiveness, robust external demand and rising investments continued to sustain high growth in the manufacturing, and transport and communications sectors. Gradually, robust external demand led to a strong recovery in domestic demand in the supporting sectors. This was most evident in the commerce sector where domestic trade contributes about 54% of the total value added in the sector.

Since the beginning of 1987, the rise in employment and job security increasingly led to more confident consumer spending. Domestic demand was also boosted by the boom in the stock market - that is, untill October - and the recovery of the property market which led to a significant rise in wealth. The improvement in price competitiveness and promotional activities also resulted in rising tourist arrivals which further stimulated the commerce sector. Better corporate earnings, improved liquidity, growing optimism and more investments led to rising activity in the financial and business services sector. The sectoral performance throughout 1987 showed clearly the diffusion of growth momentum from the leading to the supporting sector, resulting in an across-the-board expansion in economic activity.

Fortuitous external developments also played their part in fostering this broad-based expansion. After declining steadily throughout 1985, the electronics industry began to recover robustly in the second quarter of 1986. The strong improvement in our export competitiveness throughout 1985-87 resulted in the shifting of investment and production activities to Singapore. This improvement was also seen in certain other industries like ship-repairing, electronic products and tourism. The moderate recovery in commodity prices, particularly of palm oil, timber, petroleum and rubber, also helped to improve growth in the commerce, and financial and business services sectors.

As a result of the broad-based expansion in 1987, all the major sectors except construction registered high growth rates. The leading sector, manufacturing, grew at a robust annual rate of 17%. As a result, transport and communications was able to maintain a strong growth rate of 8.7%. Similarly, the supporting sectors like commerce, financial and business services also expanded by 11.1% and 10.1% respectively. The construction sector continued to be plagued by over-supply and contracted further by 11.7%.

Overall, we achieved a better-than-expected growth of 8.8% in 1987. Disaggregating the sources of growth, more than half came from higher labour productivity. This was partly due to the strong recovery which resulted in workers and under-utilised machines being better utilised. Another third of the growth was through an increase in the indigenous labour force, helped to some extent by the absorption of retrenched workers.

As an export-oriented economy, the robust expansion was fully reflected in the substantial increase in our external trade. In value terms, total non-oil domestic exports surged by 36%, while re-exports rose by 25% on the back of the recovery in the regional economies and the rise in commodity prices. The value of domestic oil exports, however, declined by 2%, with the rise in oil prices partly compensating for the 14% decline in the volume of oil exports.

The strong improvement in our export competitiveness encouraged more new investments and expansion of operations by multi-national corporations (MNCs). Total investment commitments in 1987 grew by 21% to reach the target of $1.7 billion. The most active areas for investments were the electronics and supporting industries, largely due to the sustained growth in worldwide demand for both consumer and industrial electronic equipment.

The broad-based economic expansion generated a total of 66,000 jobs in 1987, compared to the 11,100 jobs created in 1986. The unemployment rate which stood at 4.6% at the beginning of the year, fell steadily to 2.8% by the end of the year.

Given the severity of the 1985 recession, our economic performance in 1987 has been very encouraging, with recovery achieved within a short period of two years. The creditable broad-based growth, strong domestic export performance, high level of investment and increasingly tight labour market in 1987, reflected the strength of the Singapore economy which was comparable to that prevailing in the pre-recession period of 1981-84. More important, based on various indicators compiled by the Ministry of Trade and Industry, Singapore has retained her competitiveness vis-a-vis the three Asian Newly Industrialising Countries.