Singapore Inflation and GDP Growth Rates were linked

When inflation is low, there is likely chance that Gross Domestic Product (GDP) growth rate is also low. Countries fear runaway inflation as well as deflation. With deflation (or very low inflation), consumers and producers may not want to spend for fear that prices decline further. This will result in low GDP growth rate or recession. Let’s see how this play out historically in Singapore context.

Singapore inflation is measured by consumer price index (CPI). The annual inflation rates for each year from 1995 to 2015 are listed in the table below. The GDP growth rate for each year is also provided.

Year Annual Inflation Rate % GDP Growth Rate % Remarks
1995 1.7 7.0  
1996 1.4 7.5  
1997 2.0 8.3 Asian Financial Crisis
1998 -0.3 -2.2 Asian Financial Crisis
1999 0.0 6.1  
2000 1.3 8.9 Dot-com bubble
2001 1.0 -1.0 Sep11 Attack WTC
2002 -0.4 4.2  
2003 0.5 4.4 SARS
2004 1.7 9.5  
2005 0.5 7.5  
2006 1.0 8.9  
2007 2.1 9.1 Global Financial Crisis
2008 6.6 1.8 Global Financial Crisis
2009 0.6 -0.6 Global Financial Crisis
2010 2.8 15.2  
2011 5.2 6.2  
2012 4.6 3.4  
2013 2.4 4.4  
2014 1.0 2.9  
2015 -0.5 2.1 Oil price declines

Source: Department of Statistics

Let’s look at year 1998, 2001, 2009, and last two years 2014 and 2015.

Year Annual Inflation Rate % GDP Growth Rate % Remarks
1998 -0.3 -2.2 Asian Financial Crisis
2001 1.0 -1.0 Sep11 Attack WTC
2009 0.6 -0.6 Global Financial Crisis
2014 1.0 2.9  
2015 -0.5 2.1 Oil price declines

GDP growth rates were negative for 1998, 2001, and 2009 for the three major crises faced by Singapore.

Last year the All-Item CPI was -0.5%. The GDP growth rate declined further from 2014 to 2.1% in 2015 based on the advance estimates released by the Ministry of Trade and Industry. In 2015, oil prices were already starting to decline and contributed to negative inflation rate. If negative inflation rate were to continue into 2016, then the likelihood of poor economic growth for Singapore may be a reality. Let’s hope we may not come to that.

Copyright © 2016, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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