I - REVIEW OF THE ECONOMY ECONOMIC PERFORMANCE IN 1990

In last year's Budget speech, I announced that the economic performance in 1989 was excellent with growth of 9.2%. The expansion was broad-based; "we had firmly left the shadows of the 1985 recession behind us". Although it seems that I may have spoken too soon, I am pleased to report that, notwithstanding the slowdown in the developed countries, the Singapore economy turned in a good performance in 1990 with growth at 8.3%. This was the fourth year in a row that we have achieved growth that exceeds the growth in indigenous labour and productivity. Our performance was comparable to the other 3 Asian NIEs and the economies of ASEAN. Korea grew by 9%, Taiwan by 5%, Hong Kong by 3%, Malaysia by 9%, Indonesia by 6-7% and Thailand by 10%.

The financial and business services sector was again the leading sector. It grew by 15%, slightly higher than in 1989. The expansion was fuelled by offshore banking and treasury activities.

The manufacturing sector also did well with growth of 9.5%. The growth was broad-based with several industries like chemicals and petroleum showing double-digit growth.

The good performance of the manufacturing, and financial and business services sectors generated greater demand for transport and communications services. The transport and communications sector grew by 8.8%. Buoyed by entrepot trade, the commerce sector expanded by 7.8%. The construction sector grew by 7.2%.

Although growth was strong, there were signs that strong demand had led to some overheating in the economy. The inflation rate of 3.4% was higher than in recent years. While this was partly due to the increase in oil prices which led to increases in petrol prices, utility charges, MRT and bus fares, it was also partly due to the underlying pressure on resources, particularly labour. The strong economy created 60,100 jobs, mainly in manufacturing and commerce. The labour market continued to be tight with the unemployment rate at a record low of 1.7%. Nominal wages rose by 9.4%. With inflation as measured by the GDP deflator at 3.0%, this translates into a real wage increase of 6.4%.

In 1990, business costs rose by 7.3%, bringing us back to the level of 1982. A big factor was labour cost. Real wages rose by 6.4%, above productivity growth of 3.4%. As a result, the wage share in GDP rose from 42% in 1989 to 44% in 1990. Although this is still below the previous peak of 48%, we should watch it carefully.

Increases in labour and fuel costs have also pushed up costs of other services like transport and utilities. Rentals have also risen. Many of these cost increases are inevitable because of the rapid growth of our economy. Neither should we try to avoid them since it is important that cost increases that reflect the relative scarcity of a resource should be allowed through if our economy is to function efficiently. This will send the right signals to entrepreneurs to take steps to conserve the resource or to make better use of them. The Government cannot cocoon businesses from the resource constraints that we face as an economy.

It must be stressed that while absolute cost levels in Singapore have increased, our competitive position vis-a-vis the other Asian NIEs has been maintained. Of course, we recognise that Singapore is not only competing with the Asian NIEs. Regional economies like Indonesia, Malaysia and Thailand will increasingly move into our markets. The Government will continue to monitor our relative competitiveness vis-a-vis the Asian NIEs and the regional economies. The private sector must do its part to restrain cost increases and increase productivity.