Singapore and Serbia — Inflation, Brain Drain and Living Standards

Case

Table 1: Singapore’s inflation rate (Consumer Price Index, year-on-year %)

Year	CPI inflation
2019	0.57%
2020	−0.18%
2021	2.31%
2022	6.12%
2023	5.47%

Extract 1: Strong demand and constrained supply in the global economy

Inflation in Singapore has generally been low, with headline inflation averaging 1.8 per cent over the last four decades (1981–2021). However, 2022 bucked the trend: consumer prices rose by 6.1 per cent, the fastest rate since 2008. The rise was driven by several shocks to demand and supply.

Demand in Singapore grew strongly as the impact of the pandemic waned. The economy rebounded in 2021, expanding 8.9 per cent after the 3.9 per cent contraction in 2020. As restrictions eased, Singaporeans were eager to resume shopping and dining out and were able to draw on savings accumulated during the pandemic. At the same time, countries started to re-open their economies over 2021.

Many businesses that had let go of workers during the pandemic needed time to hire again, so wages rose in almost all sectors amid labour shortages. Pandemic restrictions had to be re-imposed from time to time, disrupting factories, ports and supply chains. As global commodity prices and inflation in trading partners rose over the first half of 2022, the prices of Singapore’s imports also rose. Key inputs like energy and raw food became much more expensive, driving up cost-push inflation.

Table 2 / Table 3: Selected economic indicators, Serbia and Singapore (2019–2022)

Indicator	Serbia 2019	Serbia 2020	Serbia 2021	Serbia 2022	Singapore 2019	Singapore 2020	Singapore 2021	Singapore 2022
Nominal GDP per capita (USD)	7,417.21	7,733.80	9,232.96	9,537.68	66,070.49	61,273.99	77,710.09	82,807.63
Nominal GDP growth rate (%)	0.73	18.26	3.58	1.73	−0.01	−7.55	21.64	10.14
Inflation rate (%)	0.57	−0.18	2.31	6.12	1.85	1.58	4.08	11.98
Unemployment rate (%)	10.39	9.01	10.06	8.68	3.10	4.10	4.64	3.59
Life expectancy (years)	75.94	74.48	72.78	75.48	83.60	83.54	83.09	82.90
Fertility rate (children/woman)	1.52	1.48	1.52	1.63	1.14	1.10	1.12	1.04

Extract 2: Reversing the brain drain in the Western Balkans

Youth brain drain is one of the most worrisome problems for the six countries of the Western Balkans. In the last three decades, through massive emigration, Serbia has lost 9 per cent of its citizens. These are mostly young, educated, skilled people. Estimates suggest the region will lose a quarter to half of its youth talent in the forthcoming decades.

The repercussions are major, especially the loss of human capital and GDP. Annual education costs lost vary from €840 million to €2.46 billion, implying lower consumption and welfare, costing the region around €3 billion of yearly GDP growth. The outflow of doctors, nurses and skilled tradespeople worsens the availability and cost of basic services. To reverse the brain drain, it has been argued the region should be rebranded as fertile ground for investment and innovation to attract FDI as a new driver of growth.

Questions

(a) Identify the trend in Singapore’s general price level from 2019 to 2023. [2] (command: describe)

(b) Using AD/AS analysis, give two reasons for Singapore’s increased general price level (inflation) in 2022. [4] (command: explain)

(c) Calculate and compare the real GDP growth rate (%) for Serbia and Singapore in 2022. [3] (command: compare)

(d) With the use of a production possibility curve, explain the “major repercussions” on Serbia’s potential growth in light of the youth brain drain (Extract 2). [4] (command: explain)

(e) Assess the extent to which national income indicators like real GDP per capita can be used to compare living standards between Serbia and Singapore. [8] (command: assess)

Answers

(a) Trend in Singapore’s general price level, 2019–2023 [2] — describe

The general price level was generally rising over 2019–2023 (positive and, until 2023, accelerating inflation), except in 2020, when the inflation rate was negative (−0.18%) — a one-year fall in the price level.

(b) Two AD/AS reasons for the 2022 inflation [4] — explain

One demand-side and one supply-side cause, both from Extract 1:

• Demand-pull (rising consumption). With restrictions eased, Singaporeans were “eager to resume shopping and dining out” and drew on accumulated savings, raising induced consumption (C). Aggregate demand shifts right, and near full employment this raises the general price level — demand-pull inflation.

• Cost-push (rising import costs). “Global commodity prices” rose, raising the cost of imported energy and raw food. Higher unit costs shift aggregate supply left, raising the general price level — imported cost-push inflation.

(c) Real GDP growth rate for Serbia and Singapore, 2022 [3] — compare

Approximating real GDP growth as nominal GDP growth minus the inflation rate:

• Singapore: $10.14\% - 11.98\% = -1.84\%$.

• Serbia: $1.73\% - 6.12\% = -4.39\%$.

Comparisons (any two): both economies experienced negative real GDP growth in 2022; both saw real growth fall relative to nominal; Serbia’s real growth fell further than Singapore’s; and Singapore’s real growth rate was higher (less negative) than Serbia’s.

(d) Repercussions of the youth brain drain on Serbia’s potential growth [4] — explain

The youth brain drain — “massive emigration” of young, skilled people (Extract 2) — reduces Serbia’s working-age population, so the quantity of labour falls, ceteris paribus. Since labour is a factor of production, a smaller labour force reduces Serbia’s productive capacity.

The production possibility curve shows the maximum combinations of goods producible at a given technology in a given period. A fall in productive capacity is a fall in potential growth, shown by an inward shift of the PPC from PPC₀ to PPC₁.

(e) Real GDP per capita as a measure of living standards [8] — assess

The source answer key does not provide a worked model answer for this part — see the ingestion discrepancy log. It is omitted here rather than published unworked. The relevant content lives in the limitations of national income and comparing standard of living concept notes.