Services rely on growth in manufacturing, but it doesn't cut both ways

Singapore

THE manufacturing and services sectors have served as the twin engines fuelling Singapore's economic growth, but the development of the services sector has typically been more reliant on the growth of the manufacturing sector than the other way around.

The manufacturing sector creates more jobs and fosters more economic spillovers to the services sector than the converse, said a report by lead economist Kuan Ming Leong from the Ministry of Trade and Industry's Economics Division.

Therefore, the loss of manufacturing capabilities is harder to restore as the sector does not benefit significantly from a thriving services-centric economy, he noted in the report.

And this is despite the fact that services accounted for 69.4 per cent of Singapore's gross domestic product last year; the manufacturing sector contributed to about 20 per cent of the economy.

In 2013, every S$1 million of value-added (VA) in the manufacturing sector resulted in a spillover by producing S$0.29 million in VA to the services sector and another S$0.04 million in the other sectors of the economy, the report highlighted.

However, every S$1 million of services (VA) chalked up in the services sector produced only S$0.02 million of VA in the manufacturing sector and S$0.01 million in the other sectors of the economy.

A similar pattern is seen for employment: Every 100 new manufacturing jobs were associated with the creation of 27 services jobs.

However, every 100 new services jobs were associated with only three additional manufacturing jobs.

In particular, jobs created in the biomedical manufacturing and chemicals cluster were linked to the most number of services jobs created. The manufacturing clusters also generated healthy spillovers to the rest of the economy in 2013.

For instance, the creating of 100 jobs in the biomedical manufacturing cluster generated 117 jobs in the rest of the economy, while the chemicals cluster created 76 jobs in the broader economy.

On the other hand, economic spillovers from the services sector impacted the various services industries more than it did the manufacturing sector.

Dr Kuan concluded: "The cluster approach under the the Industry Transformation Maps (ITMs) is undertaken in recognition of the increasingly complex linkages across sectors in the economy.

"In view of their synergies, efforts to grow highly-productive modern services such as professional services, wholesale trade, and finance & insurance under the ITMs will be supported by the concomitant development of a globally-competitive manufacturing sector."

READ MORE: More reports on Singapore Economy