The Singapore Economy in 1975: Stagnation and Recovery

Abstract

In mid-1975, it appeared that the world-wide recession had finally caught with Singapore. After a splendid record of growth from 1966 to 1973 and a creditable performance of nearly 7% real growth in 1974, the Singapore economy seemed no longer able to work more miracles. Growth in the first half of 1975 was put at only 0-2%. In August, the considered judgement was that the year would register at most a real growth rate of 2-3%. But in late November hopes were revised: the Deputy Prime Minister, Dr. Goh Keng Swee, predicted that the 1975 growth rate may hit 5% if the surprisingly strong upturn observed in the third quarter is maintained. This sharp turnaround underscores both the uniqueness of the Singapore economy, namely, its openness and vulnerability to international economic develop ments, and consequently its remarkable responsiveness to quickening economic recovery observed in the United States, Japan, and parts of Western Europe. The transmission effect estimated at about six months appears to have shortened. In the past decade, the Singapore economy, to quote Prime Minister Lee Kuan Yew, hitched a ride as the world bounced away at about 10 % per year growth in the world trade up to 1973. The high growth rates since 1965 were achieved amidst a period of global prosperity, stable prices and rapid trade expansion. Combined with a flexible and pragmatic style of economic management, these favourable factors propelled the Singapore economy on what appeared, until recently, to be an ever expanding growth curve. The Arab discovery and use of oil as a political weapon in late 1973 and the subsequent fourfold increase in oil prices have dramatically altered matters, and flattened the growth paths of practically all market economies. The world economy is still struggling to recover from the worst recession since the 1930s. Major econo mies seem poised for another, possibly more horrendous, round of spiralling inflation. World trade has taken a severe beating. For Singapore, the interesting questions are: What remedies have been prescribed to soften the impact of the recession? How effective are these measures and are they consistent with the long-term develop ment objectives of the Republic? Finally, what are Singapore's options for the future in the face of a developing new international economic order. These questions and some of the lessons which can be learnt from the experiences of 1975, a year of stop-and-start growth will be examined in the following sections.