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.
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