Morgan Stanley predicts working age population to shrink to 1.1%

An alarmingly bad demographic trend.

According to Morgan Stanley's comments on the Singapore Budget, the 2008/2009 Global Financial Crisis led policymakers to jumpstart efforts aimed at macro-rebalancing the economy to tap into new growth drivers as well as to address issues on greying population, foreign labour and productivity. 

The FY2013/2014 budget extends from the broad policy direction which policymakers had laid out before and such policy directives will likely remain the focus for the
medium term.

Indeed, aggressive increase in labour inputs has played an important role in terms of supporting the 8%-9% CAGR in GDP during the 2004-2007 period.

Here's more from Morgan Stanley:

However, such means to growth have run up against social, infrastructure and political constraints, as recently seen in terms of the feedback to the Population White Paper.

Measures to wean the economy off foreign labour continue to be implemented in a bid to maintain foreign labour force at about one-third of the total labour force.

At the same time, reduction in dependence on foreign workers at a time when Singapore’s demographic trends are going to deteriorate significantly means that productivity improvement is needed to cushion growth.

Indeed, Singapore has one of the worst demographic trends in the region. Working-age population is likely to slow from 4.1% CAGR in 2005-2010 to 1.1% CAGR in 2010-2015.

Based on our calculations, this poses a drag on potential growth to the tune of ~1.3ppt, all else equal. Without measures for an aggressive increase in labour force, the means of sustaining potential growth would be to raise total factor productivity.

Yet, it would be difficult to fully make up for this growth shortfall in the near term – and the policy focus on productivity improvement is not going to go away.