Analysis of S’pore’s GDP in terms of private consumption, government spending, investment and net export

Last Updated on 24, April 2014

At last I found the break down in components of Singapore’s GDP. Recall that GDP = C + G + I + (X-M). The breakdown can be downloaded from MAS website HERE. I didn’t know MAS collect this information. Anyway, according to page 19 of that document, the nominal GDP for 2008 compose of as follows:

C = Private consumption = 41.0%
G = Government spending = 10.7%
I =  Investment (private & public) = 24.9%+3.5%+2.4%=30.8%
X – M = Net export = 19.1%
Error = -1.7%

From the above, it does seem that our reliance on export consists of only 19.1% as we are mainly driven by internal consumption and investment. So why the Singapore economy is so prone to external economic shock? A check on page 20 shows that for Q1 09, Investments (shown by the Gross Fixed Capital Formation) contracted by -14.8%. Investment make up 30.8% of the GDP and so this is not a small amount. Moreover, Private Consumption and Government spending is down by -5.1% and -2.2% respectively. Despite the government making large increased in investment 11.5% in growth for that quarter, its impact to the economic is negligible since government investment only make up 3.5% of the GDP.

So the solution to Singapore woes is to increase (1) Private and public consumption (2) Encourage private investments. Sounds easy? Think it is harder than it seems. It appears to me that private consumption is down because private investment is down. Instead of expanding, companies are downsizing to a significant amount. Labors having their wage cut or losing their jobs would naturally spend less and thus cause private consumption to come down. (Unemployment rate is up from 2.5% in Q4 08 to 3.2% in Q1 09. Moreover, average wage down from $4299 to $4155). The question is – why are companies downsizing so much if net export forms a minority in the GDP? I cannot understand this. To whom are companies selling their products and services to? It is only 19.1% that goes to the outside world. Really strange. Anyone got a good answer for this?

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