Economic outlook on Singapore Better times...• Overall budget deficit: SGD 0.6bn • Primary deficit: SGD 7.34bn • Govt expenditure up 8.3% Smart and sustainable city (Carbon tax,

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Economic outlook on Singapore

Better timesIrvin Seah

Executive Director

DBS Group Research

Feb 2018

US: Recovery gaining strength

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2.5

1.6

2.2

1.5

2.4

2.6

1.5

2.3

2.6

1.0

1.2

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1.6

1.8

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2.6

2.8

2010 2011 2012 2013 2014 2015 2016 2017f 2018f

US GDP growth

% YoY

Eurozone: Stronger than usual

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-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

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M ar-13 M ar-14 M ar-15 M ar-16 M ar-17

CPI inflat ion, % YoY

GDP,% QoQ saar

GDP, % YoY

EZ: Fundamentals are stronger than usual

% YoY, % QoQ saar

Latest: 4Q17

China: Towards sustainable growth

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6

7

8

9

10

11

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China GDP, YoY%

4Q17: 6.8%

Technical payback after a strong surge

5

▪ GDP growth registered 3.6% in 2017

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-1

1

3

5

7

9

11

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M ar-14 Sep-14 M ar-15 Sep-15 M ar-16 Sep-16 M ar-17 Sep-17

% YoY, % QoQ saar

Chart 1: Technical pullback in 4Q17

Latest: 4Q17

% QoQ saar

% YoY3.6%

2.1%

6

Blip in manufacturing

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0

5

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15

20

25

30

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

M anufacturing ex Biomedical

Overal l M anufacturing

YoY%

Pullback in manufacturing

Latest: Jan18

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Normalisation of the electronics cycle

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20

25

30

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60

70

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Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

Semicon billing, 3mma (LHS)

Semicon shipments, 3mma

Electronics demand normalising

% YoY % YoY

Latest: Jan/Feb18

8

Watch China …

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-2

0

2

4

6

8

10

12

Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18

US EU China

China is the key driver and key risk

%-pt contribution

63% of NODX growth

driven by China in 2017

9

Services to pick up the slack

-1

0

1

2

3

4

5

Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17

Biz services

Financial services

Tpt & storage

Wholesale & retail

Others

Services growth

YoY %-pt contribution

Turnaround in the services sector

Latest: 4Q17

10

Services will become the main growth engine

▪ GDP growth to register 3.0% in 2018, from 3.6% in 2017

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Mar-17 Sep-17 Mar-18 Sep-18

Services Producing Industries

Goods Producing Industries

GDP growth

Services to become key driver of growth

% YoY, %-pt contribution

2017: 3.6%

2018f: 3.0%

11

Labour market has bottomed

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0.4

0.6

0.8

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-2

0

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4

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2008 2010 2012 2014 2016

Services sector growth (LHS)

Job vacancy to unemployed person ratio

Services recovery to lift labour market

% YoY

Latest: 4Q17

ratio

12

Inflation still low

▪ Inflation to register 1.0 in 2018, up from 0.6% in 2017

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

% YoY

Inflation still benign

CPI inflation

Core inflation

30 yrs historical avg DBSf

2017: 0.6%

2018f: 1.0%

MAS in normalisation mode

13Source: DBS Research

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90

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102

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108

110

2010 2011 2012 2013 2014 2015 2016 2017

Lower limit

Mid point

Upper limit

SGD NEER

Indexed: 1-5 Apr 2013 = 100

DBS SGD NEER and policy band

Zero

appreciation



Budget 2018

Enhancing sustainability

Committee for Future Economy

Connectivity

Corporate capabilities and innovation

Jobs and skills Future growth industries and market

Urban development and infrastructure

Committee For Future Economy

16

Budget 2018

Sources: DBS Research

Near term measures(e.g., CIT rebate, WCS, SG

Bonus, U-Save, Edusave,

S&CC rebate, enhanced

housing grant)

CompaniesTransform local companies

via innovation, capability

development and

internationalisation

SingaporeansPromote inclusive growth,

deepen skills

Medium term

restructuring(e.g., ITMs, PSG, EDG, DTDi,

NRP, tax deductions for R&D

and IP, TeSA)

Budget 2018

• Overall budget deficit: SGD 0.6bn

• Primary deficit: SGD 7.34bn

• Govt expenditure up 8.3%

Smart and

sustainable city(Carbon tax, Energy grid 2.0,

Smart Nation, Infrastructure

Development Fund)

Fiscal rebalancing(GST hike, BSD adjustment,

financing infrastructure

development by borrowing)

CIT: Corporate Income Tax

S&CC: Services and Conservancy Charges

WCS: Wage Credit Scheme

ITMs: Industry Transformation Roadmaps

PSG: Productivity Solutions Grant

EDG: Enterprise Development Grant

DTDi: Double Tax Deduction for Internationalisation

NRP: National Robotic Programme

TeSA: Tech Skills Accelerator

GST: Goods and Services Tax

BSD: Buyer Stamp Duty

17

The GST hike


• The GST rate will be raised by 2%-pts to 9% between 2021-2025. It was last

adjusted in 2007, from 5% to 7%.

GST, VAT rates for some regional countries

UK 20%

France 20%

Germany 19%

China 17%

New Zealand 15%

Philippines 12%

Korea 10%

Indonesia 10%

Australia 10%

Japan 8%

Singapore 7%

Thailand 7%

Malaysia 6%

Govt Operating Revenue, FY2016 SGD mn % share

Total operating revenue 67,969.40 100.0

Tax 57,803.60 85.0

Tax: Income: Corporate 13,396.70 19.7

Tax: Income: Personal 10,190.60 15.0

Tax: Income: Withholding 1,456.10 2.1

Tax: Contributions By Statutory Boards 779.60 1.1

Tax: Assets Taxes 4,380.70 6.4

Tax: Customs & Excise Duties 2,843.20 4.2

Tax: Goods and Services 10,841.30 16.0

Tax: Motor Vehicles 2,111.70 3.1

Tax: Betting Taxes 2,693.00 4.0

Tax: Stamp Duty 3,091.80 4.5

Tax: Others 6,018.90 8.9

Fees & Charges 9,439.00 13.9

Fees & Charges: Vehicle Quota Premiums 6,271.90 9.2

Fees & Charges: Others 3,166.70 4.7

Other Receipts 727.00 1.1

• Every one percentage point hike in the GST will add about SGD 1.6-1.8bn to the

fiscal position, about 0.7% of GDP.

18

A rapidly aging population

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

SG: An aging populationmillion pax

Total population

Total population

ex immigration

Zero growth

from here on

Sources: UN, DBS

19

Rising median age

Sources: UN, DBS

37.340.0

42.544.9

47.048.8 50.3 51.7 53.0

0

10

20

30

40

50

60

2010 2015 2020 2025 2030 2035 2040 2045 2050

SG: Median age will continue to riseyrs old

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A shrinking workforce …

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SG: Workforce w ill shrink from 2025 onwards% chg million pax

Labour force

Labour force growth rate

Sources: UN, DBS

21

Rising financial burden

17.6

23.0

30.1

37.7

44.1

50.3

54.857.4

0

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20

30

40

50

60

70

2015 2020 2025 2030 2035 2040 2045 2050

SG: Old age dependency ratio w ill keep rising

Ratio

Ratio of population aged

65+ per 100 person

Sources: UN, DBS

22

Rising social expenditure

Sources: Department of Statistics, Singapore

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1999 2002 2005 2008 2011 2014 2017

Social expenditure

4 per. Mov. Avg. (Social expenditure)

Rising social expenditureSGD mn

Latest: 3Q17

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Fiscal sustainability is key!


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0

5

10

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Special transfers ex top-up to endownment & trust funds

Primary surplus/deficit

Basic surplus/deficit

Primary and basic deficits deepening

SGD bn

Singapore's overall fiscal position

Revised Estimated Chg over

FY2017 FY2018 FY 2017

SGD bn SGD bn % change

Operating revenue 75.15 72.68 -3.3

Less:

Total expenditure 73.92 80.02 8.3

Operating expenditure 56.10 57.67 2.8

Developmental expenditure17.82 22.35 25.4

Primary surplus/deficit 1.24 -7.34

Primary balance as % of GDP 0.29 -1.66

Less:

Special transfers 6.23 9.11 46.2

Add:

NIRC 14.61 15.85 8.5

Overall surplus/deficit 9.6 -0.6

Overall balance as % of GDP 2.1 -0.1

24

Primary deficit deepened further in YA18


Primary Deficit:

SGD7.34bn

Overall Deficit:

SGD0.6bn

Special Transfers:

+46.2%

25

Contribution from NIRC has its limitation


0

2

4

6

8

10

12

14

16

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Contributions from NIRC

SG: Limited upside to NIRC contributions

SGD bn

Inclusion of

Temasek into

NIRC framworks

26

Key points


• Resources is limited, hence there is a need to keep a tight rein

on spending

• Reserves is about inter-generation transfers. The more we

spend today, the less we have for tomorrow

• Prudent fiscal planning is key!

What goes beyond hiking taxes or cutting subsidies?

• Growing the pie

• Cost management

• Better return from investment of the reserves



Thank you

2828

GDP & inflation forecasts

GDP growth, % YoY CPI inflation, % YoY, ave

2016 2017e 2018f 2019f 2016 2017e 2018f 2019f

China 6.7 6.9 6.4 6.2 2.0 1.6 2.1 2.2Hong Kong 2.0 3.7 2.5 2.5 2.4 1.7 2.0 2.5India* 8.0 7.1 6.6 7.2 4.9 4.5 3.7 4.6Indonesia 5.0 5.1 5.3 5.4 3.5 3.8 4.0 4.5Malaysia 4.2 5.9 5.0 5.0 2.1 3.8 3.5 3.0Philippines 6.9 6.7 6.7 6.7 1.8 3.2 3.6 3.8Singapore 2.0 3.6 3.0 2.7 -0.5 0.6 1.0 1.8South Korea 2.8 3.1 2.9 2.9 1.0 1.9 1.8 1.8Taiwan 1.4 2.9 2.8 2.4 1.4 0.6 1.0 1.0Thailand 3.2 3.9 4.0 4.0 0.2 0.7 1.5 1.5Vietnam 6.2 6.8 6.4 6.6 2.7 3.5 3.6 3.8

Eurozone 1.8 2.5 2.2 2.2 0.2 1.5 1.3 1.4Japan 0.9 1.6 1.1 0.9 -0.1 0.5 0.6 1.0United States** 1.5 2.3 2.6 2.5 1.3 1.6 1.8 1.8* refers to year ending March ** eop for CPI inflation

2929

Interest rate and FX forecasts1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

China* 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35India 6.00 6.00 6.00 6.00 6.25 6.25 6.50 6.50Indonesia 4.25 4.25 4.25 4.50 4.75 5.00 5.00 5.00Malaysia 3.25 3.25 3.50 3.50 3.50 3.50 3.50 3.50Philippines 3.25 3.50 3.75 4.00 4.25 4.50 4.50 4.50Singapore** 1.40 1.65 1.90 2.15 2.15 2.40 2.40 2.65South Korea 1.50 1.75 1.75 2.00 2.00 2.25 2.25 2.25Taiwan 1.38 1.38 1.38 1.50 1.50 1.63 1.63 1.75Thailand 1.50 1.50 1.50 1.50 1.75 2.00 2.25 2.50Vietnam*** 6.25 6.25 6.25 6.25 6.50 6.50 6.75 6.75

Eurozone 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Japan -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10United States 1.75 2.00 2.00 2.25 2.25 2.50 2.50 2.75* 1-yr lending rate; ** 3M SOR ; *** prime rate

Policy interest rates, eop

Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19

China 6.39 6.49 6.60 6.56 6.52 6.48 6.44 6.40Hong Kong 7.82 7.83 7.83 7.82 7.82 7.81 7.81 7.80India 64.7 65.9 67.0 67.2 67.4 67.6 67.8 68.0Indonesia 13,596 13,747 13900 13,960 14,019 14,079 14,140 14200Malaysia 3.95 4.08 4.20 4.18 4.16 4.14 4.12 4.10Philippines 52.6 53.3 54.0 54.4 54.8 55.2 55.6 56.0Singapore 1.32 1.35 1.38 1.37 1.37 1.36 1.36 1.35South Korea 1,082 1,121 1160 1,148 1,136 1,124 1,112 1100Thailand 31.8 32.8 33.9 33.6 33.3 33.1 32.8 32.5Vietnam 22,745 22,832 22920 22,970 23,020 23,069 23,120 23170

Australia 0.78 0.76 0.74 0.75 0.76 0.76 0.77 0.78Eurozone 1.23 1.19 1.16 1.17 1.19 1.20 1.22 1.23Japan 108 112 116 115 114 112 111 110United Kingdom 1.39 1.37 1.35 1.37 1.38 1.40 1.41 1.43Australia, Eurozone and United Kingdom are direct quotes

Exchange rates, eop

30

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Documents

Economic outlook on Singapore Better times...• Overall budget deficit: SGD 0.6bn • Primary deficit: SGD 7.34bn • Govt expenditure up 8.3% Smart and sustainable city (Carbon tax,