Economic Growth in Singapore
13 Mar 2025
Economic growth is the means by which a country increases its wealth and prosperity. Sustained economic growth is often accompanied by a rise in living standards. People have more money to spend on an expanding range of goods and services. 200 years ago, for example, the average person had no access to education, which meant they could not read or write, or upskill themselves. Today, the average person has access to arguably all the information that's available in the world, thanks to technologies such as the internet and, more recently, AI.
There's many ways to measure economic growth. The most common is Gross Domestic Product (GDP), which economists define as the aggregate market value of all final goods and services produced in a country in a given period of time. For example, the Singapore Department of Statistics (DOS) announced that the country's GDP in 2024 was approximately S$730,000 million. This amount is spread across various sectors, the three largest being wholesale trade, manufacturing, and financial services. This should not be surprising, given the island's history as a trading entrepot prior to its independence in 1965, and, after that, its rapid industrialisation into an export-oriented economy, before transitioning into a services-based financial hub around the turn of the millennium.
But more significant than GDP itself is the rate at which GDP grows. An economy with a growing GDP is better than one with a stagnant or shrinking GDP, because it means living standards are getting better: people are earning more income, and can afford to buy more goods and services. This point is especially important when it comes to raising people out of poverty. With a growing GDP, there's space and room, in the form of new opportunities, new jobs, and new industries, for people to maneuver around and improve their lives. In 2024, the DOS announced that the Singaporean economy grew by 4.4%, in real terms, compared to 2023. By "real terms", the DOS means that the growth rate has been adjusted for inflation. This is important, because technically the GDP also "grows" when prices rise. By adjusting for inflation, the DOS is able to capture the amount of real growth that has occurred in the economy.
Although GDP is correlated with well-being, they're not equivalent. The reason for this is because GDP does not capture the economic value of non-market activities, such as household work, volunteer work, and environmental degradation. These activities are not bought or sold on the market, in the way that, say, a car or a house is. Nevertheless, society benefits from having parents that raise children, volunteers that help the needy, and a clean environment. Therefore, GDP tends to understate the true value produced by the economy. Nevertheless, GDP is still helpful at a practical level. For instance, countries with higher GDPs tend to have better healthcare systems, better education systems, and better infrastructure in general.
Another indicator that is of interest to economists is the employment rate. The employment rate is the percentage of the labour that is employed, and it measures the extent to which the economy is utilising its labour resources. If a country has a low employment rate, or a high un-enmployment rate, the country is not making full use of its labour resources, and there's extra capacity in the economy that's not being realised. In other words, the GDP could be higher, and living standards could be better, if more people were employed. In 2024, the DOS listed Singapore's total unemployment rate in 2024 as 2.0%, a 0.1% increase from 2023. Closely related is the wage rate, which is the average wage that workers earn. Based on data from the DOS, the median gross monthly income for full-time employed residents in 2024 was S$5,500, or a 5.8% increase from S$5,197 in 2023.
Economists typically model labour resources in an economy using supply and demand. Labour is demanded by businesses and firms, who use it to produce goods and services that are sold in the market. The demand for labour is driven by the value of the marginal product of labour. If hiring an additional worker generates more revenue than the cost from paying wages, then the firm will hire that worker. On the other side of the equation is supply, which is provided by labourers who are willing to work at a certain wage. One way labourers decide whether to work is by comparing the wage rate to the opportunity cost of not working. Generally speaking, labourers are more likely to work when wages are high.
Wages in an economy are distributed unevenly. Workers who work in high-skilled jobs tend to earn more than workers who work in low-skilled jobs. This is because high-skilled workers require more investment in education and training, which translates into higher productivity and, ultimately, higher wages. Moreover, when new technologies are introduced, they tend to complement high-skilled workers who are more adaptable and more able to use these technologies. For example, innovation in manufacturing has led to increasing automation in factories, which favours high-skilled workers who can operate and maintain these machines. This increase in demand for high-skilled workers relative to low-skilled workers has led to a widening wage gap between the two. The Ministry of Manpower (MOM) in Singapore reported that, among full-time employed residents, the median gross monthly income for PMETs (professionals, managers, executives, and technicians; i.e. proxy for high-skilled workers) was S$7,308 in 2024, compared to non-PMETs at S$3,000, or a difference of 144%.
Moreover, globalisation has also played a role in widening the wage gap. Demand for local workers who work in industries that are exposed to international competition may decrease, as firms outsource these jobs to countries where labour is cheaper. This is not bad news for all, of course. The countries that receive these outsourced jobs benefit from the new opportunities and new industries that are created as a result. Singapore announced a commitment to maintain stronger bilateral ties with Vietnam in 2025, with a focus on cooperation in emerging industries, including digital economy. Information technology salaries in Vietnam are reported to be about 10% of the global average, which makes the country an attractive destination for firms looking to outsource their IT operations.
Other than GDP and employment rate, economists are also interested in the savings rate and the investment rate of an economy. Both are similar to the extent that they delay consumption in the present for consumption in the future. Savings and investments are important because they provide the capital that businesses need to invest in new projects and new technologies. This, in turn, leads to economic growth in the form of new jobs, new industries, higher wages, and higher GDP. DOS reported the following data for Singapore in 2024:
which translates to a saving rate of 47.5% and an investment rate of 26.5%. In other words, for every S$ 100 in the economy: S$ 52.5 is spent on consumption, S$ 47.5 is saved, of which S$ 26.5 is invested domestically, and S$ 21.0 abroad. Notice that the portion of national income that is not spent on consumption is saved, and this saving contributes to national wealth in the form of capital that generates future income.