Economic growth falters on back of unprecedented labour market tightness

Manufacturing competitiveness is eroding.

Singapore’s economic growth will remain muted this year due to the unprecedented tightness in the domestic labour market, a report by BMI Research revealed today.

The report noted that while the republic still has an edge in particularly high-value manufacturing segments such as aerospace engineering and pharmaceuticals, its competitiveness in lower value-added segments such as IC fabrication is rapidly eroding.

“While the economy's low unemployment rate is testament to its underlying health, it also represents a major challenge for firms operating in labour-intensive industries such as manufacturing,” said Andrew Wood, Head of Country Risk Research at BMI Research.

Wood also said that while policymakers have chosen to alter the pace of levy increases for some foreign workers, this move will only provide a temporary reprieve for businesses.

"We believe that the ongoing restructuring in the industry will continue to crimp overall industrial production growth (and, by relation, export growth) over the near-to-medium term. As such, we have downgraded our 2015 real GDP forecast for Singapore to 2.5%, from 2.9% previously," he stated.

Despite the subdued near-term economic outlook, Wood noted that Singapore's growth prospects are still among the strongest in the developed world.

"The economy is highly unlikely to regain its foothold in the most labour-intensive manufacturing sectors, but will continue to leverage off of a significant advantage in higher value-added industries owing to its region-beating education levels and robust business environment," he noted.