At 267 sq. mi. (New York City is 301 sq. mi.), Singapore is not on most people's minds. But this Asian city-state grew at 18.1% in the first half of 2010, outperforming China, India and Brazil, according to the Singapore government.
True, those are much bigger economies. But Singapore's performance is impressive nonetheless, both for it's contra-recession gusto and the fact that it's likely to sustain something close to that heady rate in the second half of the year as well. While the Western world feels the aftershocks of the economic crisis, Goldman Sachs estimates Singapore's 2010 GDP will be 16.5%, a substantial upgrade from its previous forecast of 12%.
What's fueling the hypergrowth? Singapore's government loosened a 40-year-ban on gambling, commissioning two casinos complete with hotel, shopping and restaurant complexes in addition to a Universal Studios. The first casino opened in January of this year, followed by a second in April. Already, the $10.2 billion initiatives are paying off; the casinos attracted more than 3 million visitors by June. Coupled with a buoyant pharmaceuticals industry and an increase in global financial institutions setting up shop in Singapore, government estimates put 2010 growth at 13% to 15%.
Even recent sluggish demand in the U.S. and Europe has done little to slow down this Asian powerhouse. "Singapore's labor market is already at close to full employment, which would provide the strongest support for the domestic economy in the face of a worsening external demand outlook," writes Enoch Fung, a Goldman Sachs research analyst, in Goldman's latest Singapore Views report. Singaporean Prime Minister Lee Hsien Loong said he expects to add at least 100,000 new foreign workers to the job market this year.
Analysts say the numbers, though high, aren't a huge surprise. "The growth is not entirely unexpected, as Singapore took one of the biggest hits among Asian economies during the recession. Singapore is adjusting back from this," says Christian Ketels, senior researcher at Harvard Business School and special adviser to the Asia Competitiveness Institute. In 2009, Singapore's economy shrank by 2.1%.
Singapore's growth will likely slow in 2011 as the world's lethargic recovery finally takes a toll on the small nation's prospects. "Singapore is heavily dependent on U.S. and European trade, and we forecast demand to be sluggish in the coming years," says Arpitha Bykere, senior research analyst at Roubini Global. What about Singapore's trade relationship with China? "Many Singaporean exports to China are reprocessed and sent on to the U.S. and Europe. So a sluggish demand in Western economies will be a double whammy to Singapore next year," she adds.
But Singapore has some secular growth winds at its back that should help offset the global economic drag. First, Singapore is increasingly replacing West European hubs as the preferred place for private banking. McKinsey's 2010 private-banking survey found that inflows dropped by 5% in Luxembourg and 1% in Switzerland last year. According to the same survey, Singapore and Hong Kong experienced net inflows of 7% in 2009. Last year, Singapore was taken off the OECD's "gray list" of countries that don't comply with internationally agreed upon information-exchange standards. Finally, Singapore is growing its own money tree: a Boston Consulting Group study finds that 11.4% of Singaporean households are millionaires, the largest proportion in the world.
Looking ahead, Goldman Sachs estimates that Singapore's 2011 GDP will grow 5.3%. Roubini puts Singapore's 2011 growth at 4.4%. The falloff from 2010's torrid pace may be a blessing, as Singapore is already finding that rapid growth carries its own risks. Inflation was previously forecast to be between 2% and 3% for 2010, according to Singapore's Trade and Industry Ministry. This was recently raised to 2.5% to 3.5%.