Growth in one of Asia's most prominent economies has reached "a structural tipping point," according to rating agency Moody's, and it remains to be seen how successful government efforts will be in reversing the slowdown.
No, it's not China but tiny Singapore.
Gross domestic product (GDP) in the financial hub has more than halved over the past five years. After logging an average annual growth rate of 6.2 per cent between 2000 and 2010, GDP expanded just 2 per cent last year, from 3.3 per cent in 2014.
Enhanced productivity is key to higher growth going forward, Moody's said, a thought reflected in ongoing government efforts to boost workers' skills, implement fiscal incentives for companies to improve efficiency and tighten foreign labour inflows.
In January, two new statutory boards, SkillsFuture and Workforce Singapore, were created to promote the national focus on skills and employment. Under the former, Singaporeans aged 25 and above receive about US$356 (S$500) in credits to use on courses and training programs.
New laws were also introduced in 2015 to reduce the country's bankruptcy rates after the number of bankruptcy orders hit a four-year high in 2013. Under the new framework, debtors have to owe a minimum of US$10,700 to be declared insolvent, up from $7,100 previously.
The government hopes measures like these will help it achieve productivity growth of 2-3 per cent per year until 2019, which is more than double the average rate over the previous decade.
"Meeting this target is key to maintaining an annual GDP growth rate of 3-5 per cent, increasing real incomes, and creating higher value jobs," Moody's said.
But the road to stronger productivity gains is complicated by Singapore's services sector, which accounts for 70 per cent of nominal GDP.
Like China, the Southeast Asian nation is moving away from manufacturing to a services-led economy, a process it began in 2010, but the sector faces headwinds ahead.
There is increasing interdependence between the manufacturing and services sectors as more "modern" services, such as info-communications, business and finance, overtake "traditional" services, Moody's warned.
"The growing share of manufacturing-related services indicates that if a slowdown in manufacturing is underway, the service sector may not be far behind," the ratings agency said.
Indeed, manufacturing has already witnessed a prolonged decline due to lower energy prices. In 2015, oil-related industries accounted for nearly 11 per cent of Singapore's manufacturing sector on a value-added basis, but output in these energy-intensive sectors declined by more than 20 per cent each.