Is Singapore productivity on a path to recovery?

Sectors are struggling to generate additional value-add.

Negative productivity growth in low-value-added sectors will continue to weigh down productivity growth, according to a report by Standard Chartered.

“Productivity is determined by output per input. Demand for Singapore’s output has been weak while labour input has grown. Most sectors have struggled to generate additional value-add (net revenue after subtracting costs) as they have expanded their workforces,” says the report.

On the flip side, Singapore labour growth, on the other hand, is expected to improve gradually as returns to scale recover on tighter but more productive labour force and a demand rebound.

Meanwhile, the medium-term outlook for labour productivity is less dismal. Some sectors are following the manufacturing sector’s lead in restructuring and boosting value-add. Financial services persist to be a bright spot, and will likely be the only sector with increasing returns to scale.

The report also asserts that government initiatives will likely boost productivity. In the near-term, Standard Chartered sees flat to moderately positive labour productivity growth, while upside potential is expected after 2020. Productivity is also predicted to contribute a bigger chunk of GDP growth by 2030.

“The services sector is becoming a bigger part of Singapore’s economy. Value-add from services exports and domestic demand may start to ease the sizeable drag from goods exports. The quality of the labour force will become increasingly important and is likely to be supported by rising education and skill levels,” the report reveals.

“At the same time, the government has shifted its focus towards increasing productive investments through the Industry Transformation Programme announced in the budget for FY16 (starting April 2016). The initiative focuses on utilising technology, research and development, and innovation,” it adds.