Risks intensify as Singapore's economy becomes more service-oriented

It’s no longer the most stable engine of growth.

The services sector is playing an increasingly important role in the Singapore economy, as the country is becoming increasingly services-oriented instead of manufacturing-oriented.

According to the Ministry of Trade and Industry, the domestic economy has become more services-oriented. Indeed, services’ share of Singapore’s nominal Gross Domestic Product (GDP) has gone up over the last decade, from 64 per cent in 2003 to 70 per cent in 2013.

This comes at the expense of the manufacturing sector, whose share in the economy has moderated from 26 per cent to 19 per cent over the same period..

The MTI has noted that this phenomenon is not unique to Singapore, as several developed economies including Japan, Denmark, Sweden, France and the United Kingdom have also experienced a rising share of services as a proportion of GDP over the past decade.

However, DBS warns that the increasing reliance on the services sector also poses risks to the domestic economy.

“Traditionally the most stable engine of growth, the services sector has seen its growth momentum sliding in recent quarters. Growth slipped to 1.7% YoY for the quarter, down from 3.8% four quarters ago. The existing labour crunch is taking a toll on this relatively more labour intensive sector,” stated DBS.

The report added that “This comes against the backdrop of the economic restructuring, which saw the steady tightening in foreign labour policies. There is a risk that the services sector continues to slow in the coming quarters owing to the labour crunch.”