Singapore's current account to GDP ration has been tumbling since 2011

Current account surplus is $17.4b.

According to DBS, the current account to GDP ratio has been falling. Latest current account surplus as of 4Q13 stands at SGD 17.4bn. While this is still exceptionally high at 20.9% of the GDP, it has been generally falling for the last 3 years.

This is about 24% lower than the recent peak of SGD 22.8bn or 30.9% of GDP in Dec10. Note that this is also the longest stretch of decline in the current account to GDP ratio since the Asian financial crisis.

Here's more from DBS:

The Eurozone debt crisis, a tepid recovery in the US and relatively slower growth in China can all be attributed to this decline.

But weak external demand alone can’t possibly account entirely for the drop in the current account surplus. Usually weak external demand will be accompanied by weak import demand.

This is especially the case for trade dependent economy such as Singapore. Reason being weaker export sales imply slower growth and as a result, less demand for imports. Hence, the net impact on the current account balance will not be significant.

So why the persistent decline in current account to GDP ratio? The crux of the issue lies in export competitiveness. Singapore’s real effective exchange rate (REER), a proxy for export competitiveness, has been appreciating vis-a-vis the average REER of the regional peers.

The appreciation of the Sing REER essentially diluted Singapore’s export competitiveness, leading to a poorer export performance while at the same time, encourages imports.

And note that the REER is a function of relative domestic costs and the nominal effective exchange rate (NEER). So, if the SGD continues to appreciate against the regional currencies or cost in Singapore remains relatively higher than the regional average, the REER will remain unfavorable to exports as well as to the current account. In short, export competitiveness matters. And Singapore hasn’t
been faring well in this regard.