SINGAPORE — In the two years since a devastating recession reduced foreign investment to a trickle and led to a collapse in its stock market, Singapore's economy has rebounded dramatically.
The nation's gross domestic product, which crawled along at 1.8% in 1986, is forecast to rise between 6% and 7% in 1987, according to a government economic survey released last month. It said the upturn comes from a surge in foreign demand for manufactured goods and increased foreign investment.
Investment, about 95% of it from abroad, soared to $450 million in the first half of this year, 50% more than in the same 1986 period.
Nonetheless, Prime Minister Lee Kuan Yew, concerned over current wage demands, warned in a state-of-the-nation address recently that Singaporeans must not take recovery for granted.
"Economic growth, and with it increased wages and benefits, are not the natural order of things. . . . They have to be worked for," he said.
"Because this recession has passed so quickly, there is a danger that this lesson may be forgotten," he said.
In 1985, the island's worst economic period in two decades, scores of firms went broke, thousands of people lost their jobs, stock prices collapsed and foreign investment shrank quickly. The GDP, the total value of goods and services minus foreign income, shrank by 1.6%.
Lee's Independence Day address that year was like a lecture from a schoolmaster. A microphone in one hand and a pointer in the other, he directed his audience's attention to various charts and graphs. He warned of bad days ahead but said this would not be the end of Singapore.
'87 a Bull Market
This year, Lee predicted annual growth of 5% over the next decade.
Stock prices have been climbing to new heights, and investment analysts say they expect the bull market to last at least until the end of the year. Companies have collected much more cash than they had originally targeted through new loans and stock offerings.
Market capitalization of shares at the Stock Exchange of Singapore jumped to $120 billion in June, from about $76 billion a year earlier, analysts said.
But despite the impressive economic recovery, there remain some trouble spots.
Bankers and economists say Singapore is heavily reliant on exports and foreign investment. A large part of its foreign exchange and gold reserves is made up of investment from Indonesia, Thailand and Brunei.
The economic recovery has also triggered labor demands for the lifting of a wage freeze imposed in early 1986. Bankers said higher wages could affect the nation's competitiveness and prospects for foreign investment.
Johan Stainsby, head of the investment division of Singapore International Merchant Bankers Ltd., said investors may shift to countries offering cheaper labor. "We remain optimistic the growth rate in 1988 will be good, but it is unlikely to be as strong as in 1987," Stainsby added.
The Monetary Authority of Singapore, the central bank, said there is uncertainty about future growth because the recovery had been mainly due to a "cyclical upturn in external demand."
The wage freeze underlined that Singapore was an expensive place to do business, said an economist in a foreign bank.
"It remains to be seen if Singapore will remain competitive over its market rivals like Taiwan, South Korea and Hong Kong after wages are raised," he said.