Singapore and the Recession of 1985

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Singapore and the Recession of 1985

Singapore’s economy has been extremely successful in recent decades in Southeast Asian history. When Singapore claimed their independence in 1957 Singapore was still a very under-developed country with only a small manufacturing industry, a ‘decaying’ urban organization, a rapid population growth, widespread poverty, and high unemployment levels. However, by 1984 her per capita GNP levels had reached higher levels than Ireland and Italy.

Nevertheless, in 1985 Singapore experienced a recession that affected her throughout the country. Until 1985, Singapore’s economy averaged 9.7% per year since 1965 but soon was experiencing GDP rate of negative 1.7%.

When Singapore became independent in 1959, her economy was established upon entrepot trade and other related services that accounted for over 70% of GNP. When she withdrew from the Malay Federation, she was required to implement an export-oriented policy of industrialization.

“Between 1965 and 1979, GDP growth averaged 10.1% per year with the only serious decline occurring in 1974-75 when the first oil shock and the resulting world recession pushed growth down to “only” 4%. Industries geared to export included electronics, shipbuilding and repairing, oil rig construction, and petroleum refining; by 1977 direct exports accounted for 65% of total manufacturing output”.

Known as the Second Industrial Revolution, Singapore experienced a bold restructure of its economy. The government was aware that they needed to move into skill and capital intensive industries that would produce high value-added goods. The problems the country was facing were meant to be overcome by adopting the following policies:

One – Use the NWC as a means of raising wage rates well ahead of productivity so as to force firms to upgrade and to move “upmarket”.

Two – Establish a Skills Development Fund that would reimburse employers with 70% of the cost of retraining workers in selected activities.

Three – Raise educational levels through the setting-up of a Vocational and Industrial Training Board and by emphasizing engineering and the sciences in tertiary education.

Four – Promote and invest in research and development.

Five – Restrict the use of cheap immigrant labour and ease controls on immigration of skilled and professional personnel.

These polices had a dramatic influence; between 1978 and 1982 average earnings in manufacturing rose 81%. However, the first signs of the recession can be seen when looking at the GDP records for this year. The GDP growth rates dropped from 10% to less than 3% in 1985. The recession took the government by surprise as it was so quick.

The recession occurred for a number of reasons. The external factors were because Singapore’s shipbuilding and oil refining industries declined at the beginning of 1984 as Middle Eastern refineries were in direct competition with Singapore.

Internal factors that caused Singapore’s recession were the rise in unit labour costs and the issue of manpower. Only a small percentage of Singapore’s population were properly educated and trained and played a considerable role in her recession.

Singapore’s recession in 1985 was a devastating blow to the country; however, the experience has played a vital role in bringing her back to complete health.


Rigg, Jonathan (1988) Singapore and the Recession of 1985, Asian Survey, University of California Press.


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