Government economists often employ aggregate demand analysis to dis-aggregate contributions to nominal demand growth in Singapore. While such analysis is correct and the data presented are factual, the difference between total demand and output is often not understood by readers of the official reports. This causes the perception that Singapore s economic performance is overwhelmingly determined by external demand to be perpetuated. We also clarify the huge bias exerted by exports on the former method. The difference between the two approaches is immediately apparent.
External demand is essentially exports.
The approach assigns the same importance to every dollar of spending generated by the domestic economy. It is not a value-added approach. In consequence, it takes on a biased role if constituents of domestic and external demand are erroneously used as barometers for measuring relative contributions to GDP growth. Traditional macroeconomic analysis has extensively employed ETDA because exports are part of aggregate demand, and the latter is the main factor influencing corporate investment and thus the business cycle, i.e., the good old accelerator principle. However, we believe that an ETDA-based analysis is unsuitable for Singapore because it is such a big exporter.