Singapore pledges green development

Despite economic strains, Singapore has committed to pursuing green development goals, though experts said slowing growth should be considered in its long-term goal to decarbonize its economy.

On Oct 25, Singapore's Deputy Prime Minister Lawrence Wong said the city-state raised its national climate target to achieve net zero emissions by 2050.

Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore's Business School, said Singapore's quest to achieve net zero is compatible with economic growth.

Loh said decarbonization may even encourage investment and consumer spending.

"While businesses may incur additional overall costs for net zero, these can be offset by the lower risk profiles, which translate to decreases in financing costs as well as the new revenue opportunities brought about by environmentally oriented pursuits," he said.

Singapore will submit the enhanced targets to the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change, or COP 27, which will be held from Nov 6 to 18 in Egypt.

Singapore has implemented a carbon tax, the first carbon pricing scheme in Southeast Asia, since January 2019. The carbon tax level is set at S$5 per metric ton ($3.54 per metric ton) of carbon dioxide equivalent from 2019 to 2023. But the Singaporean government is planning to incrementally increase its carbon tax from next year to 2030 to achieve its decarbonization target.

Nawazish Mirza, a finance professor at the Excelia Business School in France, said slowing growth should be taken into consideration for Singapore's long-term goal to decarbonize its economy.

"To provide a more conducive operating environment for the industry, the government may have to delay its plans of increasing the carbon tax. Similarly, there will be financial constraints to support the decarbonized technological transition," Mirza said.

Recently modest consumption and weaker demand for electronic exports are seen to weigh on Singapore's growth. Analysts said the same factors will likewise affect growth in other Southeast Asian economies.

"Singapore's economy will slow in tandem with the deceleration in global demand, which will also affect growth in the rest of Southeast Asia," said Manu Bhaskaran, CEO of Singaporean think tank Centennial Asia Advisors.

'Open economy'

Loh said Singapore's economic slowdown will have a bearing on the region because it has "an open economy with deep interactions "with its neighboring countries such as Indonesia and Malaysia, which are among Singapore's top trading partners and top investment destinations.

In its biannual macroeconomic review last week, the Monetary Authority of Singapore said the city-state's GDP this year would ease to 3 to 4 percent and is projected to slow further to "a below-trend pace" next year.

The MAS said the global electronics cycle is "on the brink of a downturn", noting that global chip sales started contracting in the third quarter. The domestic semiconductor industry is also grappling with rising energy costs.

The reopening of borders has boosted the travel and tourism sector and encouraged domestic consumption. But MAS noted that higher inflation and economic uncertainties could moderate the pace of discretionary spending.

Trinh Nguyen, a senior economist at the French investment bank Natixis, said a slower Singaporean economy "is likely to be repeated across ASEAN", which is especially true for export-dependent economies like Malaysia and Vietnam.

Natixis sees Singapore's GDP slowing to 2.6 percent next year. Nguyen said while pent-up consumer demand has supported the economic rebound in the past few months, the future is not as sanguine.

"Interest rates are higher and that will lead to softening of the real estate market, although it is still rather resilient. However, a strong Singapore dollar and weakening global demand mean that external sectors will underwhelm (Singapore's growth prospects)," she said.

Nguyen said Singapore is vulnerable to rising sea levels and this is why it is important that it has set a net zero target.

"The question is how Singapore will get there and so the impact to GDP is not obvious as it is likely to target energy efficiency first, while it figures out how to change its existing energy mix," she said, noting that Singapore remains dependent on petroleum products.