Rapidly deteriorating demographics threaten long-term economic growth

Raising productivity and focusing on exports is key.

Singapore’s economy is under threat from its steadily deteriorating demographics. The government’s initiatives to boost productivity are key to holding off the SIlver Tsunami, but Morgan Stanley states that even the best efforts could fail to catch up quickly enough to close the growth shortfall.

“Growth in working-age population is likely to slow further and will pose a drag on potential growth. Without measures to aggressively increase labour inputs, the answer to sustaining potential growth would be to raise total factor productivity gains. Yet, it may be difficult to fully close this growth shortfall so quickly. In this regard, we think deteriorating demographics likely point to a structurally lower potential growth trend until productivity catches up to close the gap,” noted the report.

Here’s more from Morgan Stanley:

For the medium term, the changes in the global economy both in terms of growth level and nature of global demand together with domestic issues such as aging population/stricter immigration policies mean that macro rebalancing to tap higher growth export segments/export destinations and improving productivity is the only sustainable answer to raise growth prospects and rein in inflation.

On the former, an export-growth model will remain the growth strategy, but policymakers will likely continue to focus on reshaping the export machine to cater to demand from secular trends of urbanisation, aging and growth affluence (particularly in Asia) and to capitalise on growth themes such as health and wellness, urban solutions and lifestyle services and products.

Policymakers will also likely implement measures to help companies expand their top lines via introduction of new products, a departure from the previous strategy of helping companies to manage their bottom lines via more cost-efficient production.