Manpower policies to be preferred over monetary tweaks if job weakness escalates: analysts

The friction in jobs data could be due to skills mismatches.

The Monetary Authority of Singapore (MAS) expects the city-state’s jobs market to soften further, and may opt for manpower or fiscal policies over monetary policies in the short term.

According to a report by Citi, this could take place if the weakness in 2Q jobs data would turn out partly frictional in nature, or caused by anomalies such as skills mismatches.

“If stronger than expected average wage growth at >4% in 1H16 reflects compositional shifts in the workforce, this should not materially alter MAS’s view of subdued upstream cost pressures,” the report said.

“If so, we would downplay the slight uptick in MAS’s core inflation forecast, to the extent it reflects mainly supply driven bottoming in oil prices. Inflation forecast upticks are unlikely big enough to alter the expected cyclical flattening of the REER,” the report added.

Meanwhile, Citi also noted how policymakers are more likely to lean heavily on fiscal policy to respond to shocks.

“While the 2016 budget is supportive, there could be some room for more fiscal stimulus in the event of shocks. Cumulative fiscal stimilus from multi-year programs could be significant. Barring a severe recession (as in 1997/98, ‘01 or ‘08/09), monetary and fiscal policy need not always move in the same direction,” the report added.