SINGAPORE - The Ministry of Trade and Industry (MTI) has strongly refuted economists who have warned in recent weeks that the ongoing restructuring of Singapore's economy is not working and needs to be put on hold.
MTI said these economists were being "too hasty" in making this claim based on gross domestic product (GDP) growth figures from just one quarter - namely the second quarter - which came in worse than expected.
It also disagreed that the restructuring pace is too fast for businesses to adapt to. On the contrary, it said, the pace is "balanced" and restructuring is taking place in phases to give firms time to adapt. "We need to press on with restructuring at a steady, sustainable pace," it added.
In a four-page response to questions from The Straits Times, MTI said of the second quarter's growth figures, which have been a matter of concern: "Weak GDP growth in the second quarter of 2014 is not reflective of the impact of economic restructuring."
Fluctuations each quarter are to be expected given Singapore's export-oriented economy, it added.
And the average growth of 3.4 per cent year-on-year for the first half of the year is "healthy" given the current stage of economic development.
Four years into a 10-year plan to boost productivity and median wages while tightening the inflow of foreign labour, several established economists have become concerned that the effort is hurting the economy.
Bank of America Merrill Lynch economist Chua Hak Bin said in a report on Singapore to clients that economic restructuring is failing and Singapore is losing its ability to seize growth opportunities.
Singapore Management University economist Augustine Tan raised similar concerns in a commentary in this newspaper. He drew parallels with the restructuring efforts of the early 1980s which contributed to Singapore falling into a recession.
Rebutting their views, MTI cited a slew of figures which point not only to the economy being in good shape, but businesses and investors also having confidence in it going forward. These include the monthly Purchasing Managers' Index, a leading indicator of factory output. It has been in expansionary territory for six consecutive months.
A Department of Statistics survey of about 1,500 firms in the service sector in June found that 21 per cent expect business to improve in the second half of the year, up from 15 per cent of those polled in April.
More companies are also being formed, and investment commitments and unemployment levels remain healthy so far this year, while wages continue to grow.
These show that "business sentiments and outlook for the rest of the year have generally improved in tandem with an expected improvement in the global economy", the MTI said.
On productivity, MTI said that while growth overall has been weak, certain manufacturing sectors have achieved gains. It acknowledged that industries like construction and retail and food, which have historically relied heavily on cheap foreign labour, continue to be laggards.
But the situation is improving and gaining momentum, MTI said, and there is greater take-up of productivity incentive schemes.
"We remain confident that the economy will be able to restructure successfully over time to be more productivity-driven," MTI added.
This article was first published on August 2, 2014.
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