SECTION I - REVIEW OF THE ECONOMY ECONOMIC PERFORMANCE IN 1988

In my last Budget speech, I announced a recovery across all sectors of the economy, with the exception of construction. Overall in 1987, we registered a better-than-expected growth rate of 8.8%.

However, I was more cautious in my outlook for 1988. The world was then lingering in the sombre shadow of the worst stock market crash since the Great Depression. The US index of leading indicators which had been shown to precede activity in our own manufacturing sector, was then on a downward trend. Even our surveys of general business expectations in the manufacturing and services sectors reflected a possible slow-down in 1988. As it turned out, however, expectations of a post-crash recession dissipated as the US economy continued on its longest post-war expansion into the sixth consecutive year. Even the major OECD and regional economies continued to perform well.

Today, I am glad to note that the broad based expansion of the Singapore economy had continued into 1988. Overall, the economy grew at a stronger pace of 11% in 1988, the highest annual growth in this decade. Most major sectors did better in 1988 compared with 1987. Construction continued to decline by 5%.

As in 1987, strong external demand was the main impetus of growth, contributing 90% of the growth in total demand. Total exports of goods and services rose by 29%, compared to 11 per cent in 1987. Non-oil domestic exports and total re-exports grew by 41% and 35% respectively. Our strong international competitiveness, particularly in manufacturing, enabled us to benefit from the buoyant OECD and regional economies which are our key export markets. Domestic demand also expanded by 7%. This was due to the strong 13% growth in private consumption expenditure and the 27% increase in private fixed capital formation.

Our competitiveness, EDB's promotional efforts, and favourable external developments such as the strong Yen, boosted foreign investments. Manufacturing investment commitments totalled a record $2 billion in 1988.

As a result of the strong economic growth, 65,900 jobs were created in 1988, mostly in the manufacturing sector, compared with 66,000 jobs in 1987. But many of the jobs in manufacturing went to foreign workers. It was the increase in foreign employment that enabled us to exceed the long term growth rate of 4 to 6%. The contribution to overall growth from productivity was 4.4% while local labour contributed 3.8%. Foreign labour contributed the remaining 2.8%.

However, the strong inflow of foreign workers carries a high social and political cost, especially in the longer term. To prevent excessive dependence on foreign workers, policy changes, including increases in the foreign worker levy, were announced in November.