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Singapore's labour productivity declines 1.3% in Q2

The drop in productivity was the first quarterly decline since the second quarter of 2013.

SINGAPORE: Labour productivity in the Republic fell 1.3 per cent in the second quarter of this year from a year ago, hurt by falling productivity in sectors such as accommodation and food and business services, the Ministry of Trade and Industry (MTI) said on Tuesday (Aug 12).

The drop in productivity was the first quarterly decline since the second quarter of 2013.

Finance and insurance and manufacturing were the only sectors with productivity improvements, showing a 1.6 per cent growth and 1.1 per cent growth, respectively.

Sectors with the sharpest declines in productivity were accommodation and food services, business services and construction, with a 3.2 per cent dip, a 2.7 per cent dip and a 2 per cent dip, respectively, the ministry said in its Economic Survey of Singapore for the second quarter of 2014.

MTI, however, noted that short-term productivity data may also reflect cyclical factors related to demand, rather than underlying structural changes that are often observed only over a longer time horizon.

Using a common mathematical tool to remove short-term business cycle fluctuations called a Hodrick-Prescott Filter from a data series, it said trend productivity growth for the overall economy from 2010 to 2013 was 1.6 per cent per annum - which is much higher than the actual productivity growth of 0.2 per cent per annum.

"It takes time for productivity to ramp up and adjust," said Mr Vishnu Varathan, a Senior Economist at Mizuho Bank. "And in the meantime, if there've been very cyclical moves in the economy, for example, post-Lehman there was a V-shaped rebound, and demand picked up very quickly, only to scale back again. In this situation, a lot of firms find it difficult to make hiring decisions or capital investment decisions, so they've held back for a long time. And that impinges on ramping up productivity, because the outlook horizon is shortened and there is a lot of obscurity around it."

MTI said there are several reasons to believe that productivity will improve moving forward.

These include the fact that the full effect of manpower tightening measures are only beginning to be felt. The measures were introduced in phases to give firms time to adjust.

MTI also said there are encouraging signs that attitudes towards productivity have shifted, and that an increasing number of firms in low productivity sectors such as construction and retail and food services are participating in various government initiatives to boost productivity.

"With time, as global economic conditions continue to pick up and our productivity initiatives take effect, we are confident that we will see an uplift to our productivity growth," the ministry said.

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