I - REVIEW OF THE ECONOMY ECONOMIC PERFORMANCE IN 1991

The Singapore economy grew by 6.7% in 1991, slower than the 8.3% growth in 1990. This slowdown reflected both domestic supply-side constraints and more adverse conditions in our external markets. Compared with the other Asian NIEs and ASEAN economies, Singapore performed moderately well. South Korea expanded by 8.6%, Taiwan by 7.2%, Hong Kong by 4%, Malaysia by 8.6%, Indonesia by 6% and Thailand by 7.9%.

The slowdown in the economy was a result of slower growth in two major sectors: manufacturing and financial and business services. The manufacturing sector grew by only 5.3% in 1991, down from 9.5% a year ago. This was due to a softer computer market and weaker growth in the industrial countries. The three largest industries - electronics, transport equipment and petroleum products - grew by only 0.4%, 4.4% and 3.4% respectively.

Growth in the financial and business services sector also slowed. It grew by 5.4%, much lower than the 13% in 1990. While business services in general remained buoyant, growth in the financial subsector fell from 19% to 2.9%. This was mainly due to a decline in offshore banking and foreign exchange activities. Total assets of the Asian Dollar Market contracted by 8.4% in 1991, while the average daily volume of foreign exchange transactions declined by 5.8% from US$79 billion in 1990 to US$75 billion in 1991. The general slowdown in the volume of financial activity was in line with the consolidation of international banks, especially those of Japan and the US, to meet the Bank for International Settlements' capital adequacy requirements. However, the performance of financial institutions in Singapore has remained good because of improved interest margin and a switch into new off-balance sheet activities not captured under conventional methods of compiling value-added statistics.

The commerce and the transport and communications sectors have also slowed down moderately. Commerce expanded by 6.4% in 1991, lower than the 8.2% in 1990. Its growth was mainly from entrepot trade. However, domestic trade, hotels and restaurants were affected by the sharp decline in visitor arrivals caused by the Gulf War and the recession in some of our major tourism markets. The transport and communications sector registered slightly slower growth of 8% compared with 8.8% in 1990. Air cargo grew more slowly but sea cargo expanded at a faster rate.

In contrast with the other sectors of the economy, the construction sector expanded more rapidly in 1991. It was the fastest growing sector, with growth of 21%. This boom was a reflection of the large value of contracts awarded in previous years.

The slower growth in the economy, however, helped to ease pressures on prices. While the average inflation rate for 1991 was the same as that in 1990, at 3.4%, we ended the year with an inflation rate of 2.6%. This was down from a high of about 4% in the first 3 quarters of 1991.

The labour market was still tight, with an unemployment rate of 1.9% as at June 1991. 64,000 new jobs were created in the economy, mainly in the construction and commerce sectors. Nominal wages in 1991 rose by 9.2%, slightly lower than the 9.3% in the previous year. With general inflation as measured by the GDP Deflator at 1.6%, real wage growth was 7.6% compared with 5.9% in 1990. As labour productivity grew by only 1.5%, this marks the third year in a row where real wage growth has exceeded productivity gains. As a result, the profit share in nominal GDP fell from 48.6% in 1990 of GDP to 47% in 1991 (see Chart 1 (Cols. 503 - 504)). Chart 1 - PROFIT SHARE (Cols. 503 - 504)

In the manufacturing sector, unit labour cost rose by 6.8% in 1991. Although unit labour cost also rose in the other three Asian NIEs, the rate of increase in Taiwan and Hong Kong was lower. The Singapore dollar also appreciated faster than the other NIE currencies. As a result, our unit labour cost relative to the other NIEs rose by another 7.5% (see Chart 2 (Cols. 503 - 504)). This brings our relative competitiveness position to that in 1982 and 1983. Chart 2 - SINGAPORE'S RELATIVE UNIT LABOUR COST IN MANUFACTURING AGAINST THE OTHER NIEs (Cols. 503 - 504)