SINGAPORE, April 28 — Wage cuts rather than retrenchments will be the main impact on workers here from the looming Covid-19 driven recession, although unemployment is still expected to rise, said the Monetary Authority of Singapore (MAS) today.
Workers in retail, the food and beverage sector and recreation services are the most vulnerable to being laid off, the MAS said in its latest twice-year macroeconomic review, while noting that “unprecedented” government measures would keep many workers in jobs.
The central bank also said that Singapore’s economy could shrink even more than expected if “downside risks” materialise, such as more stringent measures to contain Covid-19 or a longer than expected period to control the virus.
The MAS reiterated the Trade and Industry Ministry’s earlier projection that Singapore’s economy will contract between one and four per cent this year.
By comparison, the MAS looked to the last three economic crises faced by Singapore, noting that in 2009 the local economy eked out 0.1 per cent growth in the aftermath of the global financial crisis, shrank 1.1 per cent in 2001 after the dot.com bubble burst and contracted 2.2 per cent in 1998 during the Asian financial crisis.
Economists downgraded their growth forecast for Singapore yet again when Prime Minister Lee Hsien Loong announced that the circuit-breaker measures would be extended by another four weeks, with many estimating that the economy may contract by more than 4 per cent.
DBS Bank economist Irvin Seah estimated that about 45,600 workers will lose their jobs this year, in a report published yesterday.
Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye produced an even higher estimate of between 150,000 and 200,000 job losses in an earlier study.
With oil prices plunging and spending by Singaporeans muted, MAS also expects inflation to turn negative this year, although prices of imported food could increase due to supply chain disruptions brought about by nationwide lockdowns by governments worldwide as they try to curb the spread of the Covid-19 disease.
The MAS expects both its measures of inflation to come in between -1 per cent and zero, the first time they have turned negative since 2002. The central bank uses the term “disinflationary pressures” to refer to the outlook for inflation here rather than “deflation” which is a longer term problem which economists sometimes call an “economic death spiral” as people stop spending money as they wait for prices to fall further. It was a key feature of Japan’s “lost decade” in the 1990s.
Wage cuts and job losses
As the economy comes to a “temporary shutdown” to slow the spread of the virus, MAS says that demand for labour will decline significantly.
This is especially so for industries most affected by the crisis, including travel-related industries as well, services for consumers, such as retail, food services and land transport.
Employment growth will also weaken in the trade-related sector as demand for Singapore-produced goods around the world, such as electronics, declines since almost everywhere is affected by Covid-19.
This will have knock-on effects on employment in the maritime and aviation industries.
Job prospects in the transport equipment and other related services will also dampen due to the plunge in oil prices.
In the financial sector, job gains are also expected to be muted as companies and individuals are not borrowing money as much, and volatility in the financial markets have dampened investors’ sentiments.
Only a “handful” of industries, such as construction, healthcare, public administration and education, are expected to expand its headcount.
Despite government’s measures to help companies cut costs, such as subsidising workers’ wages through the Job Support Scheme (JSS), MAS said that some will still have to undertake cost-cutting measures, such as making their staff work shorter work weeks or take no-pay leave.
Some firms may also ask their staff to take a pay cut. It cited a recent Mercer Singapore survey showing that three per cent of firms here had cut salaries, while five per cent were considering that step. Only one per cent were contemplating retrenchments.
While firms have been urged by the National Wages Council to resort to retrenchments as the last resort, MAS said the large, abrupt shock to Singapore’s economy is still likely to cause retrenchments and unemployment to rise.
This is exacerbated by the fact that labour market conditions were already slightly weak before Covid-19. Firms that were in a weak financial position before the outbreak are also more likely to retrench, said MAS.
“Overall, the combination of a pullback in hiring and rise in retrenchments will likely cause the resident unemployment rate to step up,” the central bank noted in its review.
MAS also said that unemployment usually rises first before a higher number of firm closures are observed in the next quarter, suggesting that a spike in unemployment typically occurs only when firms are about to shut down.
Thus, wage subsidies through the JSS, should forestall a large spike in unemployment in the near term, said MAS, and also prevent spare capacity in the labour market from emerging — a term referring to workers without a job, or working fewer hours than they would wish. — TODAY
