A Bloomberg story about how the ‘Great Singapore Sale’ this year was a costly affair for mainland Chinese shoppers should not surprise anyone. It is somewhat challenging for a small city-State that does not really produce ‘things’ that the average people pay for – food and energy – to control costs and improve productivity. The next big component is rent. City States that allow home prices to run up in a big way face upward rental pressures all the time there is an asset price boom. Singapore is working to bring it down and succeeding. But, it will take years to work off the run-up of the boom years. In the meantime, there could be resistance from property owners. My guess is that, in these smaller countries and even worse, city-States, once prices climb, they do not come down that easily. There is more stickiness than is normal. That is my hypothesis.

More importantly, Singapore simultaneously wants local wages to rise. Whether a rise in productivity will follow or is preceding it, is unclear. Economies dominated by services are not easily amenable to productivity gains.

I had written about Singapore’s internally inconsistent economic goals in a detailed report for a client in November 2013. I wrote an Op.-Ed. for MINT two weeks ago. Singapore’s economic restructuring challenge will be watched with interest and anxiety.

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