Chart of the Day: Why is Singapore's productivity drive failing?

Economic restructuring efforts are yet to bear fruit.

When Singapore first rolled out its economic restructuring drive half a decade ago, regulators were hopeful that productivity gains will be enough to boost growth despite weaker domestic production capacity.

However, this chart from Deutsche Bank shows that labor productivity in the city-state has been persistently lacklustre, growing by 0.4% year-on-year on average since 2011. This is a far cry from average productivity growth of 2.1% in the preceding decade, and a long way from government targets of 2-3% growth per year.

"Labor productivity in Singapore has been weighed down by a shift in employment towards less productive sectors such as food and beverage services and construction and away from relatively more productive sectors such as transportation and storage," Deutsche Bank said, citing a study from the Ministry of Trade and Industry.

“The increase in employment share of domestically-oriented sectors that are less productive may be attributed to increased labor demand arising from the government’s push to ramp-up building and infrastructure works in recent years, relatively lower barriers to entry partly driven by government incentives tailored towards older workers, and an aging population that is driving the growth of healthcare and social services sectors,” Deutsche Bank added.

Deutsche Bank reckons that it may take longer than envisioned by policymakers for Singapore to reap the benefits of economic restructuring.

“We surmise that the mix of cyclical and structural forces that have been a drag to the economy, which are likely to remain so going forward, implies that Singapore will have to resign to muted growth for a couple more years,” Deutsche Bank said.