Singapore’s wages will grow at a faster pace in 2013, contributing to higher labor costs and price pressures even as the economy expands at a “modest” pace, the central bank said today.
The island’s job market will remain “tight” this year as demand for workers outpaces supply amid the continued tightening in foreign labor, the Monetary Authority of Singapore said in a twice-yearly review. A Manpower Ministry report today showed job creation in the three months through March 31 was the weakest in 10 quarters, and the unemployment rate rose from a five-year low.
Singapore tightened curbs on overseas workers for a fourth straight year in February and unveiled measures that will raise wage costs for companies through 2015, as the government steps up efforts to increase productivity. The central bank, which uses its exchange rate to manage inflation, stuck to a policy of allowing gradual gains in its currency even after the economy unexpectedly contracted last quarter.
“Overall employment growth will moderate, as supply constraints in both the foreign and local labor forces become more binding,” the central bank said. “With more firms turning to locals to fill job vacancies, resident wages will rise at a slightly faster pace across all sectors. As a result, unit labor costs will continue to increase, despite some improvement in productivity.”
Overall wage growth could average 3 percent in 2013, compared with 2.3 percent in 2012, the central bank said. The economy added 20,800 jobs last quarter, compared with 44,000 in the previous three months, the Ministry of Manpower said today. The seasonally adjusted jobless rate rose to 1.9 percent from 1.8 percent, it said.
Singapore has remained vulnerable to fluctuations in overseas demand for its goods amid an uneven global recovery. Its exports fell for the fourth time in five months in March, while factory production slid for a second straight month.
Gross domestic product may expand 1 percent to 3 percent this year while inflation may be between 3 percent and 4 percent, the central bank said today, reiterating previous forecasts. The economy shrank an annualized 1.4 percent in the three months through March 31 from the previous quarter.
“Domestic economic activity should pick up gradually over the course of 2013 as the global environment improves,” today’s report said. “The sources of growth for the Singapore economy will be more balanced between internal and external drivers compared to last year, when growth was predominantly driven by the former.”
Risks still remain, the central bank said. The International Monetary Fund this month lowered its global growth forecast. The euro-area economy has contracted for five quarters, while China and the U.S. expanded less than analysts estimated last quarter.
“Lingering uncertainties from outstanding fiscal issues in the U.S. and the potential for policy missteps in the Eurozone could jettison the nascent turnaround in global business and consumer confidence,” the central bank said. “As such, the Singapore economy is likely to continue to be confronted by intermittent bouts of external volatility, although a sharp deceleration is not envisaged at this juncture.”
The monetary authority said on April 12 it won’t change the slope and width of the currency trading band that it uses as the main policy tool.
“The appreciating stance of exchange rate policy since April 2010 has helped to dampen imported inflation, temper the build-up of inflationary pressures and anchor inflation expectations,” the MAS said today.
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