Singapore sinking fast in productivity
It joins Vietnam and Thailand as Asian countries with the highest falls in total factor productivity over the past decade.
Total factor productivity is a measure of macroeconomic efficiency, according to HSBC which undertook the analysis, with most countries suffering productivity slowdowns except for Indonesia and the Philippines.
Singapore, along with Vietnam and Thailand, seem to have had the worst track record in boosting productivity since the financial turmoil of the mid-1990s, and their increasing reliance on capital and labor inputs for GDP growth could "be less sustainable" in the long run.
Here's more from HSBC:
In part two of our series, we look at total factor productivity (TFP) in Asia, another measure of macroeconomic efficiency. We find more evidence that productivity growth slowed over the past ten years, except in Indonesia and the Philippines. China’s record is a little mixed, while Vietnam, Singapore, and Thailand have witnessed the biggest fall in productivity growth
Regional averages unfairly gloss over country nuances. TFP growth picked up in Indonesia, the Philippines, and China. Elsewhere, it declined over the past decade. The sharpest drop occurred in Singapore, Vietnam, Thailand, Taiwan, and Hong Kong. In Malaysia and Korea, too, productivity gains slowed lately, while in India the deceleration has been relatively muted.
In Singapore, Taiwan, and Vietnam, the slowdown in productivity growth since the mid-1990s is even more marked, with Korea and Thailand seeing a drop in TFP gains as well. Some of these countries were hit hard by the financial storm of 1997, suggesting that, on current trajectory, vulnerabilities could re-emerge. In Indonesia, Malaysia, and the Philippines, however, the opposite is true: productivity growth has actually accelerated here since the early 1990s.
While advances in overall productivity provide important clues, it is also important to look at the contribution of TFP to GDP growth. Again, in Singapore, Taiwan, Thailand, and Vietnam, growth is increasingly driven by capital and labour inputs, which may be less sustainable. Compared to the 1990s, this is also true for China and India. However, in Korea, while overall TFP gains have slowed since the 1990s, their contribution to GDP growth have risen, suggesting that the quality of Korean growth has actually improved (less reliance on capital and labour inputs) even as the trend growth rate has come down. In Indonesia and the Philippines, productivity growth is playing a greater role today than before the Asian Financial Crisis.
In virtually all cases, the quality of growth has deteriorated, with productivity contributing less to GDP growth in 2011 than before. Notably, it is not just higher investment that has driven growth of late (especially in China, Hong Kong, Singapore, India, Taiwan, Thailand, and Vietnam), but also employment gains. The latter explains why wages are rising so rapidly and job markets are tight across Asia. It also, in turn, explains why consumption is booming. The trouble with this is two-fold. First, if not accompanied by higher productivity, higher wages ultimately fuel inflation. Moreover, with demographics moving against it, Asia will increasingly find it hard to grow at its accustomed pace unless it can crank up the productivity dial. Time to get to work.
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