Supply problems, rising costs may threaten competitiveness

Supply problems, rising costs may threaten competitiveness
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By Erica Tay

IT MAY be a champagne economy, but blistering growth is creating ’supply bottlenecks’ that are pushing up costs and putting competitiveness at risk.

These words of caution come from a Citigroup study centring on a shortage of office and residential space and tighter labour supply in Singapore.

Citigroup economist Chua Hak Bin said that if the Government’s moves to ease supply do not address these ‘bottlenecks’ quickly enough, tighter fiscal and monetary policies may be needed.

‘The concern is that escalating costs and limited slack could also hurt competitiveness and constrain growth, particularly against Hong Kong,’ said Dr Chua, who noted that the Hong Kong dollar has fallen by about 13 per cent against the Singapore dollar over the last two years.

The report cited Mercer’s latest cost of living index, which placed Singapore as the 14th most expensive city for expatriates, up from 46th in 2004.

The private residential rental index here has soared by 31 per cent year-on-year, while the office rental index has rocketed by 46 per cent.

Private residential occupancy, meanwhile, is at 95.1 per cent, higher than the previous peak of 94.3 per cent in December 1995, the report noted.

Policies to ease real estate supply by releasing land may need time to materialise, Dr Chua said, as he raised the issue of whether the authorities will need to ‘tame excessively strong demand conditions either through tighter monetary or fiscal policies, in the interim’.

Source: The Straits Times, 31 July 2007