Overly restrictive labour measures might be suffocating Singapore's growth: BofAML

Labour productivity won't pick up the slack.

Singapore's "overly restrictive" drive to curb foreign manpower growth might be suffocating the city-state's growth prospects.

Bank of America Merrill Lynch Economist Hak Bin Chua highlighted that labour productivity might be unable to pick up the slack as the republic's job growth slipped to recession-like readings in the first quarter.

"Dependency ratio ceilings (or foreign worker quotas) will become binding from 1st July for ‘existing’ workers, which may further freeze hiring and sap investments. Private investment contracted in 2014, while EDB manufacturing investments have been falling in the last three years. Overly tight labor supply constraints risk stalling growth, with labor productivity unlikely to fully compensate,” Chua said.

He added that while firms have been given considerable time to adjust, resident labour participation rate is already at an all-time high while ageing demographics is further eroding the pool of available younger workers.

“Slower employment growth should be expected, as the resident labor supply tightens and slows, but the sudden freeze in 1Q is disconcerting. This begs the question of whether the government’s DRCs are cast in stone or can be adjusted if this freeze persists and hurts growth in coming quarters. The government has fortunately delayed the hike in foreign worker levies (originally scheduled for July) to over the next two years in the recent Budget. The broader economic outlook, including property, manufacturing and many services-related sectors, will be much dimmer if such weak employment numbers persis,” he noted.