Here's why labour market will backlash amid economic slump

Singapore may suffer waning competitiveness.

According to Nomura, investors have remained complacent about the macro numbers in Singapore. In spite of the continued sluggishness of the Singapore economy in the first nine months of the year, the market has trended higher.

Here's more from Nomura:

Domestic sentiment has remained resilient as unemployment has remained low. With interest rates at historically low levels and demand in the property sector still buoyant, it is not surprising that the sentiment has remained optimistic.

However, we believe the reality is that Singapore is undergoing an adjustment phase and the economy has slowed not only because of weaker external demand but also as a consequence of the labour market adjustments it has had to make.

Economic indicators like exports, industrial production and PMI continue to point to sluggish growth ahead and this may take a toll on unemployment. Moreover, with the MAS keeping a lid on inflation, the Singapore dollar has had to remain stronger for longer.

We believe that this will eventually have an impact on the economy through a loss of competitiveness.

From a stock market perspective, we think these macro factors will inevitably affect both revenues and costs, thus putting pressure on corporate profitability. The recent MAS policy to further curb property prices through higher LTVs and stricter loan tenures will likely affect loan growth.