Sunday 22 February 2015

Singapore economy grew by 2.9 percent in 2014

Economy remains stuck in slow lane
Growth fell to 2.9% last year and could stay muted through 2015
By Chia Yan Min, The Straits Times, 18 Feb 2015

THE muted global outlook and pressures from economic restructuring at home put the brakes on economic growth last year.

The economy expanded 2.9 per cent - marginally higher than an earlier estimate of 2.8 per cent, but much slower than the 4.4 per cent recorded in 2013.

Economists expect this year will be much the same as the last, as companies grapple with global headwinds and the continuing challenges of a tight labour market and rising costs.

There were few standout performers last year as domestic exports - particularly in the electronics sector - remained sluggish, while productivity growth was lacklustre, according to Ministry of Trade and Industry (MTI) data out yesterday.

The manufacturing sector did pick up pace last year, although this was somewhat offset by slower growth in the construction and services industries.

Growth in manufacturing - which makes up a fifth of the economy - improved from 1.7 per cent in 2013 to 2.6 per cent last year, supported mainly by the biomedical and chemicals clusters.

The finance and insurance sector was also a bright spot. It grew 7.7 per cent over the figure in 2013 and helped offset weakness in other services segments such as wholesale and retail trade.

Alongside modest economic growth, labour productivity extended its recent tepid performance, contracting 0.8 per cent last year. This came after a slight 0.3 per cent uptick in 2013.

MTI permanent secretary Ow Foong Pheng told a briefing yesterday that the Government will "redouble its efforts" to raise productivity and offer targeted, sector-specific help.

The Government has set a target of 2 per cent to 3 per cent productivity growth per year over a 10-year period to 2019. This is an "aspirational" target that Singapore will continue to strive towards, Mrs Ow added.

OCBC economist Selena Ling said next Monday's Budget is expected to address some of these issues, given the "urgency of the economic restructuring theme and the feedback... that cost concerns and the tight labour market remain key constraints on business growth".

Official forecasts suggest modest economic growth of 2 per cent to 4 per cent this year, given that global growth "is expected to come in only marginally better than in 2014", MTI said yesterday.

The United States is expected to be a bright spot, though an unexpected interest rate increase could weigh on financial markets and business sentiment.

Growth in the euro zone is likely to remain sluggish, while China is expected to slow further.

MTI also pointed to risks from sharp declines in commodity prices and recent capital outflows from emerging markets, noting that these may exert fiscal and financial stresses on emerging market economies.

However, Barclays economist Leong Wai Ho said stronger growth in the US and Asean - and the tailwind from lower oil prices - will "likely prove to be offsetting factors". The lift from cheaper oil is expected to become more apparent in the second half of this year, he said.

Less efficient sectors taking on more workers hits productivity
Singapore must continue to restructure economy, says MTI study
By Chia Yan Min, The Straits Times, 18 Feb 2015

THE lacklustre labour productivity numbers can be attributed partly to the fact that less efficient sectors have been employing a growing share of the workforce, a new study showed.

A Ministry of Trade and Industry (MTI) report out yesterday said increasing numbers of less-skilled workers taken on in industries such as construction, food and beverage and retail services - the laggards in terms of improving output per worker - are affecting productivity numbers for the overall economy.

The Government has set a target of 2 per cent to 3 per cent productivity growth per year over a 10-year period to 2019. Productivity rose 2.6 per cent a year on average from 2009 to last year, reversing a decline of 1 per cent a year in the previous five years.

However, most of the gains could be attributed to a strong rebound in 2010 following the global financial crisis. If 2010 is excluded, productivity growth has averaged only 0.3 per cent a year. However, the performance of export-oriented sectors in the period differed significantly from their domestically oriented counterparts, the report noted.

Between 2010 and last year, labour productivity in exportoriented industries grew 2.2 per cent a year on average, driven by the biomedical manufacturing, precision engineering and transport engineering clusters.

But productivity in domestically oriented sectors fell 0.1 per cent a year on average over the same period, with the sharpest decline seen in the retail trade segment.

This ''should not come as a surprise, as exporting firms have to constantly improve their products and processes in order to compete globally'', the MTI report said.

Less productive, domestically oriented sectors - such as construction and food and beverage services - employed a growing share of the workforce over the 2009 to 2014 period, the study also showed.

This weighed down overall labour productivity growth, which is calculated by measuring value added per worker.

The MTI offered a few possible reasons for this - first, that employment growth in the construction sector was boosted by a ramp-up in building work in recent years.

A growing number of previously economically inactive older workers and less-educated people have also entered the workforce.

As barriers to entry in some less productive sectors are lower, workers might have found it easier to gain employment in these industries.

The health-care and social services sector - classified under ''other services industries'' - has also hired a growing number of workers to cater to the needs of the country's population.

The report also noted that improvements in capital intensity - which mean increasing the amount of technology or machines that each worker has to work with - as well as improving the quality of labour helped to boost labour productivity growth.

However, contributions from both these factors have declined in recent years.

The study concluded that Singapore must ''press on with efforts to restructure the economy towards more productive sectors''.

This entails equipping the workforce with skills to take on higher value-added jobs, while helping companies invest in capital and improve business processes.

CIMB economist Song Seng Wun said Singapore's ongoing efforts to restructure the economy and raise productivity are still a work in progress.

Labour productivity contracted 0.8 per cent last year, a reversal from 2013's 0.3 per cent uptick.

''This flip-flop in productivity growth over the past four years suggests there is still plenty of work to be done,'' said Mr Song.

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