PART I - REVIEW OF THE ECONOMY ECONOMIC PERFORMANCE IN 1992

After the 1985 recession, the Singapore economy rebounded strongly in 1987 and 1988. Quarterly growth rates then started falling steadily, from 11% in the first quarter of 1988 to 4.9% in the second quarter of 1992. This decline and the continued weakness of the US economy raised fears of a recession in Singapore in 1991. In particular, manufacturing growth fell rapidly from 11% in the first quarter of 1991 to 1.4% in the fourth quarter. The pessimistic outlook gained further support when the US economy only managed a weak recovery and the manufacturing sector recorded negative growth in the first quarter of 1992, the first time since the recession of 1985. Meanwhile, the financial sector was adversely affected by the consolidation of international banking activities and offshore risk management business. Consumer spending was also depressed due to weak sentiments.

Fortunately, the Singapore economy was diversified and regional growth was strong. Robust growth of the transport and communications, and construction sectors helped to keep overall growth in 1991 and the first half of 1992 at around 5%. With the gradual moderation in cost pressures and better external conditions, the economy bottomed out in the third quarter of 1992.

For 1992 as a whole, the economy grew by 5.8%. This is a creditable performance when compared with the other NIEs. Taiwan grew by 6.1%, Hong Kong by 5.0% and South Korea by 4.9%.

The manufacturing sector recovered from negative growth in the first quarter to register growth of 2.3% for the whole of 1992, on the back of strong growth in the output of electronics products such as personal computers, disk drives and telecommunications equipment. The financial and business services sector was also stronger in the second half. This was due to higher demand for financing of regional projects, sustained growth in domestic loans and advances, and a more active foreign exchange market. Growth for the sector was 5.4%. Transport and communications continued to do well, riding on the strong regional economies. This sector grew by 9.2%. The construction sector continued to register double-digit growth, at 18%. The commerce sector was, however, sluggish. Retail trade was adversely affected by the change in composition of tourist arrivals, weaker tourist spending and cautious domestic consumer sentiment.

The slower growth moderated cost pressures. The labour market eased somewhat. The unemployment rate in June 1992 stood at 2.7% compared with 1.9% in 1991. This moderated wage cost increases. Nominal wages grew by 7.5% in 1992 compared with 9.2% in 1991. Productivity growth recovered in the second half, in line with the cyclical recovery in output. Productivity growth for 1992 averaged 3.1%, up from 1.5% in 1991.

In the manufacturing sector, slower growth in unit labour cost together with reduced utilities and interest costs helped to moderate business cost increases considerably. The Unit Business Cost Index for the manufacturing sector rose by only 1.9% in 1992. I refer Members to Chart 1 (Cols. 581 - 582). This compares favourably with the average annual increase of 4.9% between 1987 and 1991. However, with our weaker productivity performance relative to our competitors and a robust exchange rate, our relative unit labour cost against the other NIEs deteriorated slightly in 1992. I refer Members to Chart 2 (Cols. 581 - 582). The profit share in nominal GDP also fell marginally from 47% in 1991 to 46.2% in 1992. This is shown in Chart 3 (Cols. 583 - 584). Charts 1 & 2 - Unit Business Cost of Manufacturing 1980-92, Singapore's Relative Unit Labour Cost Against The Other NIEs In Manufacturing, (1980=100) (Cols. 581 - 582)

Chart 3 - Profit Share of Nominal GDP 1980-92 (Cols. 583 - 584)