Singapore showed its resilience in the global financial crisis by rebounding faster than before and more strongly than other nations, said credit rating agency Moody's Investors Service on Thursday.
In a report singing the praises of the Republic's strong economy, robust institutions and healthy public finances, Moody's said Singapore's top Aaa sovereign rating reflects "substantial resilience" and low vulnerability to risks.
But the agency also warned that Singapore faces challenges in its ongoing drive to make companies more productive.
The economy bounced back from a 1 per cent contraction in 2009, at the height of the financial crisis, to grow 14.8 per cent in 2010.
This was a faster recovery than in previous downturns, and a stronger rally than in any other Aaa-rated country, Moody's said.
"Singapore's economic output now exceeds its pre-crisis level by more than 20 per cent," the agency said, adding that Singapore, Australia and Switzerland were the only Aaa-rated countries whose economies did not shrink to below 2007 levels.
However, the productivity push will hamper Singapore's ability to maintain low inflation, and the Government's "ambitious" productivity goals will be hard to achieve, the agency added.
The Government has said that recent curbs on foreign labour, part of the productivity drive, are likely to keep consumer price rises at an elevated level this year.
It expects overall inflation of 3 to 4 per cent for 2013.
Moody's expects inflation to remain close to 4 per cent, as asset prices are pushed up by the cost of housing and cars on a land- scarce island, negative real interest rates, and Singapore's status as a regional safe haven.
But workers here should be able to cope with higher costs this year, as nominal wages in Singapore are likely to outpace inflation, Moody's added.
The agency also commented on the Government's aim to grow productivity by 2 to 3 per cent a year until 2020, noting that overall productivity fell 2.6 per cent last year.
"This is an ambitious target when compared to historical labour productivity growth in other advanced economies, and given that the adjustment process will likely take another two to three years before the benefits materialise," it said.
Moody's added that between 2000 and 2010, productivity grew by an average of 1.8 per cent in Singapore, 1.4 per cent in the United States, and 0.7 per cent in Germany. Hong Kong bucked the trend with 3.2 per cent productivity growth.
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