Singapore's economic recovery is gathering speed with a 14% increase in Quarter 2 (April to June) compared to the previous - the best increase on the previous quarter's growth in the 3 years since Singapore's startling success story was disrupted by global slowdown and increasing export competitiveness from China and smaller Asian nations.

Year on year the economy grew 3.9% for Q2, up from the estimate of 3.2%. Manufacturing and wholesale/retail trade, biomedical, as well as transport and communications registered sound positive growth, though electronics, construction and finance sectors continued their detraction.

Today, Singapore's Ministry of Trade and Industry (MTI) is forecasting annual GDP growth in 2002 of 3 to 4% compared to the previous estimate of 2 to 4%. Unlike neighbouring countries, Singapore government economic forecasts are traditionally conservative, and the MTI is declining to state a forecast for 2003. Other more talkative bodies are forecasting 2003 growth at 5% (Salomon Smith Barney) and 8.4% (Nanyang Technological University economists).

Despite the varying estimates however, the prognosis is good for Singapore economic prospects for the next 12 months, especially considering the substantive and unusual downturn in the past 2 to 3 years. Should the US and Japanese economy improve, Singapore is sitting pretty. Should the US economy and consumer/industrial sentiment degrade Singapore's cautious optimism may well disappear. Most importantly there are tentative signs that foreign investment is returning to the Singapore equity market after a year or so of depression - resulting in a recovery for the Singapore stock market (reflected in the main composite STI), and a consequent knock on to economic health 9 to 12 months in the future.

Behind the scenes, as for all Asian economies, the export giant of China casts a blanketing shadow. Foreign investment is being increasingly and substantially diverted away from South East and even East Asia to China, which in July recorded a massive year on year export growth of more than 28%, as neighbouring countries face increasing competition in manufacturing mainly through lower costs and the lowering of barriers to foreign investment in China.

Singaporean leaders have been more honest than many - preparing their middle class and affluent populace for the grim reality that the level of salary and living standards achieved in previous years are now a thing of the past. While Singapore is well positioned to offer added value in return for high operating costs, there is an increasingly approaching ceiling on what can be offered, and competitive strategy will be forced to address cost issues as a larger factor in the mix.

For Asian business strategists, expect a Singapore to recover substantially from the lows of their recent recession, but not to recover the highs of the last decade where Singapore was able to dominate competitiveness rankings by virtue of their relative higher quality of goods, services, and infrastructure compares to their regional competitors. Malaysia, Thailand and Indonesia are demonstrating, in some cases in very preliminary form, of being able to compete on quality in the future while maintaining lower costs, increasing the cost effectiveness of doing business in the latter countries.

Singapore also has less obvious competitive advantages over their competitors which relating to business culture. A very high standard of strategic planning and transparency as well as much lower levels of corruption is the often under-estimated equity for stakeholders and investors in Singapore business.