Grim labour mar­ket looms as econ­omy ac­cel­er­ates

Eco­nomic pro­duc­tion grew 2.9% in 2Q17 beat­ing mar­ket ex­pec­ta­tions, and yet, the labour mar­ket re­mains a lag­gard due to job-skills mis­match.

Singapore Business Review - - CONTENTS -

For the thou­sands of Sin­ga­porean work­ers who lost their jobs or were turned down on their ap­pli­ca­tions, the joy­ous news of an ac­cel­er­at­ing Sin­ga­pore econ­omy brings lit­tle com­fort. The labour mar­ket re­mains chal­leng­ing with to­tal em­ploy­ment con­tract­ing in the sec­ond quar­ter of 2017 even as the coun­try’s eco­nomic pro­duc­tion grew 2.9%, beat­ing mar­ket ex­pec­ta­tions. And whilst 3,500 Sin­ga­pore­ans were laid off be­tween April and June, fewer than the pre­vi­ous quar­ter and a year ago, more re­trench­ments could be in the off­ing as it will take time to fix the job-skills mis­match plagu­ing the labour mar­ket.

Firms are shed­ding staff af­ter com­plet­ing dig­i­tal­i­sa­tion up­grades that re­duce the need for labour, whilst those that do want to hire ad­di­tional head­count are fac­ing a lack of skilled work­ers able or will­ing to take on open­ings. Man­u­fac­tur­ing work­ers have been par­tic­u­larly af­fected by this plan, as seen in con­tin­ued lay­offs.

Deutsche Bank chief econ­o­mist Ju­liana Lee noted that man­u­fac­tur­ing pay­rolls fell 3.3% yoy in the same pe­riod even as the sec­tor ex­panded 8.1%. Man­u­fac­tur­ing con­tin­ued to lead growth in Sin­ga­pore, gal­vanised by elec­tron­ics pro­duc­tion that rose two per­cent­age points faster in 2Q17 than the pre­vi­ous quar­ter.

This is also in spite of a wors­en­ing bio­med­i­cal sec­tor that con­tracted more than three-and-a-half per­cent­age points than in the pre­vi­ous quar­ter. In con­trast, ser­vices pay­rolls rose only 1.4% even as the sec­tor ex­panded 2.4%. Fac­tor­ing in the heavy re­trench­ment in con­struc­tion where pay­rolls fell 5.7% in 2Q17, to­tal em­ploy­ment fell 0.4% and Sin­ga­pore’s un­em­ploy­ment rate stood at 2.2%.

UOB head of re­search Suan Teck

said that the labour mar­ket re­mains weak point­ing out the job va­can­cies to un­em­ployed per­sons ra­tio has been de­clin­ing for 10 quar­ters. The lat­est job va­cancy to un­em­ployed ra­tio in the first quar­ter of 2017 stood at 0.81, which Suan reck­oned was “amongst the worst since the global fi­nan­cial cri­sis 30 quar­ters ago and has been below par­ity for four con­sec­u­tive quar­ters.”

The weak labour mar­ket has been seen as one of the driv­ers that has low­ered con­sumer sen­ti­ment and con­tracted house­hold con­sump­tion. Pri­vate con­sump­tion ex­pen­di­ture posted two quar­ters of nega­tive growth on a yoy ba­sis, which Suan men­tioned has never hap­pened since 1976 dur­ing a non-re­ces­sion­ary pe­riod and could point to a “deeper, struc­tural is­sue within the labour mar­ket.”

Partly in re­sponse to slug­gish do­mes­tic con­sump­tion, Sin­ga­pore’s cen­tral bank may act more care­fully with re­gards to pol­icy nor­mal­i­sa­tion, even as the coun­try’s growth prospects this year brighten on the back of im­prov­ing man­u­fac­tur­ing and global trade.

“The MAS [Mone­tary Au­thor­ity of Sin­ga­pore] may also choose to ap­proach pol­icy nor­mal­i­sa­tion more cau­tiously, due to pos­si­ble con­cerns over Sin­ga­pore’s medium-term growth – par­tic­u­larly to pop­u­la­tion ag­ing, changes in im­mi­gra­tion pol­icy, and as the econ­omy ap­proaches the tech­nol­ogy and pro­duc­tiv­ity fron­tier,” said Joseph In­cal­caterra, chief econ­o­mist at HSBC. “More­over, do­mes­tic con­sump­tion re­mains rel­a­tively sub­dued, de­spite higher ex­port fig­ures, as high­lighted by weak pri­vate con­sump­tion and gross cap­i­tal fixed for­ma­tion.”

3,500 Sin­ga­pore­ans were laid off be­tween April and June.

Whether Sin­ga­pore can broaden its eco­nomic re­cov­ery and man­age its job­less growth has at­tracted more at­ten­tion as the coun­try ben­e­fits from a global trade up­ick. The man­u­fac­tur­ing and ser­vices sec­tor con­tin­ued to shine, ac­cord­ing to In­cal­caterra.

Man­u­fac­tur­ing and ser­vices shine

“Sin­ga­pore’s man­u­fac­tur­ing sec­tor has hand­somely ben­e­fited from the re­cent pick-up in global trade, par­tic­u­larly from strong Chi­nese de­mand for elec­tron­ics and other man­u­fac­tured goods,” he said, adding that the sec­tor’s ex­pan­sion has pro­vided “a sig­nif­i­cant lift to the coun­try’s eco­nomic mo­men­tum. ”the ser­vices sec­tor, which rep­re­sents roughly two-thirds of eco­nomic pro­duc­tion, grew by 7.2% yoy in 2Q17 com­pared to 6.2% in the pre­vi­ous quar­ter - and it is on a roll.

“As a mat­ter of fact, ser­vices have ex­panded by one per­cent­age point each quar­ter since the third quar­ter of 2016. More sig­nif­i­cantly, the pri­mary rea­son for the sec­tor’s pickup in 2Q17 were growth in pre­vi­ously lag­gard ar­eas, in­clud­ing: whole­sale & re­tail trade, fi­nance & in­sur­ance, and busi­ness ser­vices,” In­cal­caterra noted. May­bank Kim Eng an­a­lyst Chua

Hak Bin noted that whole­sale & re­tail trade saw faster growth as non-oil re-ex­ports ac­cel­er­ated, and re­tail sales vol­ume rose faster.

Trans­porta­tion & stor­age con­tin­ued grow­ing at a ro­bust due to rises in con­tainer through­put, air pas­sen­ger traf­fic and air cargo han­dled. As for fi­nance & in­sur­ance, the sec­tor was sup­ported by stronger bank loans, Sin­ga­pore Ex­change ac­tiv­i­ties and in­sur­ance seg­ments, ac­cord­ing to Chua. Fi­nance & in­sur­ance pushed the growth pedal, ex­pand­ing at its fastest pace in more than two years at 3.8%.

“MTI [Min­istry of Trade and In­dus­try] at­trib­uted the strength­en­ing of busi­ness ser­vices to ‘head of­fices & busi­ness rep­re­sen­ta­tive of­fices and other ad­min­is­tra­tive & sup­port ser­vices’, re­flect­ing the surge in prop­erty mar­ket trans­ac­tions seen in the first half of the year,” Chua said.

Con­struc­tion: The “weak­est link”

But even as the man­u­fac­tur­ing and ser­vices sec­tor out­per­form, the con­struc­tion sec­tor is prov­ing to be a headache for the Sin­ga­pore econ­omy. The em­bat­tled sec­tor con­tracted 5.7% yoy in the 2Q17, its fourth con­sec­u­tive quar­ter of nega­tive growth, al­beit in line with gov­ern­ment es­ti­mates, ac­cord­ing to In­cal­caterra.

“Con­struc­tion re­mains the weak­est link,” said Chua, at­tribut­ing the con­trac­tion to lower pub­lic and pri­vate sec­tor con­tracts.

Shar­ing her san­guine out­look on con­struc­tion, Deutsche Bank’s Lee reck­oned the sec­tor may soon find its foot­ing and flour­ish once the Min­is­ter for Na­tional Devel­op­ment’s newly un­veiled draft mas­ter plan for Jurong Lake District kicks into high gear. The plan in­cludes the devel­op­ment of Sin­ga­pore’s sec­ond cen­tral busi­ness district.

“This 15-20 year plan, with a sig­nif­i­cant num­ber of white sites, al­lows de­vel­op­ers to cre­ate a mix of uses, likely serv­ing as a crit­i­cal cat­a­lyst for de­vel­op­ments ahead of the High­speed Rail ter­mi­nal oper­a­tion in 2026 and a strong boost in sen­ti­ment for the con­struc­tion sec­tor,” she said.

Amidst a chal­leng­ing la­bor mar­ket that has al­ready slashed man­u­fac­tur­ing and con­struc­tion jobs, the sec­ond half of the year (2H17) might bring in more wor­ries for the un­em­ployed and work­ers in dan­ger of re­trench­ment as an­a­lysts ex­pect growth mo­men­tum to slow from the first half.

Lee said that the slow­down in GDP growth will likely to be lim­ited to 2.3% in 2H17, ex­pect­ing net trade and coun­ter­ing the nega­tive im­pact of de­stock­ing. For Suan, 2H17 should see the con­tin­u­ing growth for the elec­tron­ics and pre­ci­sion en­gi­neer­ing clus­ters, but warns that the dou­bledigit growth for semi­con­duc­tor pro­duc­tion may slow into the sin­gle dig­its, due to base ef­fects and a slower 2H capex growth ex­pected in China.”

Heaad­winds to­wards end 2017

Sin­ga­pore can also be­come vul­ner­a­ble to head­winds and un­cer­tain­ties to growth in the face of the up­com­ing elec­tions in sev­eral Euro­pean coun­tries. “It may fuel fur­ther pop­ulist, anti-trade sen­ti­ments which will be a strong nega­tive for Sin­ga­pore’s trade-de­pen­dent econ­omy,” said Suan.

Chua, mean­while, held a more san­guine view, main­tain­ing a full-year GDP fore­cast at +3% in 2017. He an­tic­i­pates that an im­prov­ing do­mes­tic econ­omy will off­set the ex­pected mod­er­a­tion in man­u­fac­tur­ing growth in 2H17 point­ing the up­lift in ed­u­ca­tion, health, so­cial ser­vices and the arts, en­ter­tain­ment & recre­ation seg­ments, as well as re­tail trade and prop­erty.

The slow­down in GDP growth will likely to be lim­ited to 2.3% in 2H17.

To­tal em­ploy­ment fell 0.4% and Sin­ga­pore’s un­em­ploy­ment rate stood at 2.2%

fig­ure 1: Man­u­fac­tur­ing pro­vid­ing ad­di­tional lift to GDP growth Source: CEIC, HSBC

Data hint at mod­est re­bound in con­struc­tion ahead

Job­less growth in man­u­fac­tur­ing

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