Dark clouds loom over the world's richest country

ASIA BRIEFING comes this week from Singapore, which is now the world’s richest country, a fact that causes little surprise as you wander through vast precincts filled with Louis Vuitton and Hermès shops, boutique hotels and gleaming new shopping malls.

There is also a goodly smattering of bookshops, including Page One, and the Singaporeans are proud of the way in which they have become wealthy while remaining a bit nerdy.

While the millionaires of the Pink Floyd song Money dreamed of buying football teams, Singapore’s über-rich apparently list “books and reading materials” among their favourite items. This is in sharp contrast with the supercars and gadgets favoured in China and India.

Singapore is the richest nation when judged by gross domestic product (GDP) per capita, according to a report by Knight Frank and Citi Private Bank, coming ahead of Norway, the US, Hong Kong and Switzerland.

Singapore’s GDP per capita in 2010 was $56,532 (€44,192), measured by purchasing power parity.

And the report reckons the city state will see a 67 per cent increase in centimillionaires – those with more than $100 million (€78 million) in disposable wealth – in the next four years.

The report also finds that southeast Asian decamillionaires (those with $10 million – €7.8 million – or more in assets) already outnumber those in Europe and are expected to overtake those in the US in the coming decade.

It believes Singapore will still be the richest country on this basis in 2050.

Those kinds of forecasts are always particularly appealing as they smack of hubris but it has to be said that Singapore is a singularly stable and solid place.

Of course, it’s not immune to the world’s current economic woes and there are dark clouds looming even over this sunny outlook.

Singapore’s economy is set to weaken this year on the back of weaker global demand and related international financial and trade strains emanating from the European debt crisis. “Under the benign global baseline scenario, growth is forecast to soften this year to just below 3 per cent, with a moderate increase in 2013,” the International Monetary Fund said in its annual review of Singapore’s economy. While weakening this year to 2.9 per cent, GDP is expected to accelerate to 3.4 per cent next year, the Washington-based bank said.

A low unemployment rate will spur domestic demand and inflation will remain elevated. The city state should let inflation, which is currently at around 4.5 per cent, rise temporarily to accommodate price gains from tighter labour markets even as those stemming from credit growth should be “forcefully tackled”, the IMF reckons.

“Given Singapore’s pronounced trade and financial openness, the impact of further euro area turmoil, abrupt fiscal tightening in the United States and/or a severe slowdown in China would be substantial,” the IMF said.

At the same time, Singapore’s financial muscle leaves it well placed to weather the economic storm.

“Singapore has ample policy space and large buffers to mitigate the effects of a steeper global growth slowdown or financial turmoil,” the IMF said.

The Singapore government has trimmed its prediction for 2012 growth to 1.5 per cent from 2.5 per cent, from an earlier forecast for an expansion of up to 3 per cent.

“A sharp slowdown in China would also be problematic through trade and tourism channels, but the authorities view a soft landing as their base case,” the IMF said.

The government is currently trying to slow down the number of foreign worker inflows, which should boost wages and help lift productivity growth, if accompanied by well-targeted incentives for technology and skills upgrading.