Strain on hiring to extend until end-2019: MAS

Wage growth is also likely to contract in the next two years.

The Monetary Authority of Singapore (MAS) is expecting a weakening labour market despite the overall employment’s 19,000 expansion in H1, because of the continued economic slowdown, according to its Macroeconomic Review report.

The resident unemployment rate has edged up to 3.1% in June with fewer job vacancies than unemployed persons for the first time since December 2017. Even though retrenchments had remained low in Q2, the re-entry rate amongst retrenched residents declined.

Also read: Jobless rate up 2.3% in Q3

MAS noted that this will likely dampen wage growth in 2019 and 2020.

“Declining profitability as well as the softening labour market should reduce the pace of wage growth, especially in firms with more flexible compensation arrangements. Resident wage growth is therefore likely to ease in 2019 and 2020, compared to last year,” it stated.

In addition, the rates of recruitment and re-entry of retrenched residents into employment are said to have declined as well. The significant fall in the vacancy rate also signals hesitant hiring intentions.

The slowdown in GDP growth has mainly been absorbed by weaker productivity growth rather than cuts to employment. Productivity fell by 0.9% YoY in H1 2019, reversing the gains in the previous year. This was blamed on the trade-related cluster, i.e., wholesale trade and manufacturing, where employment was resilient even though output declined. Meanwhile, productivity growth in the modern services cluster turned marginally negative, whilst that of domestic-oriented services was slightly positive due to a cyclical uplift in construction.

As for income, growth of gross operating surplus dropped to around zero in H1, whilst that of compensation of employees remained relatively stable at 3.5%. Resident wage growth is said to have contracted to 2.8% YoY in H1 from 3.5% in 2018, reducing firms’ marginal wage costs.

However, hiring sentiment are projected to go up in modern services and and domestic-oriented services by Q3 and Q4, respectively. Some segments in the manufacturing sector has seen its output expand, including chemicals, biomedical and general manufacturing. Preliminary Q3 data also showed that employment in manufacturing increased by 1,200.

On the other hand, job creation in the modern services cluster should remain relatively firm. Hiring in professional and financial services is expected to be supported by a seasonal pickup in Q3, whilst corporate IT solutions will continue to be a source of job creation as companies press on to digitalise and streamline processes for cost efficiency.