Job market to improve in 2018, but wages not expected to increase rapidly: MAS

Job market to improve in 2018, but wages not expected to increase rapidly: MAS

With expectations of higher interest rates ahead, households should continue to stay financially prudent, said Singapore’s central bank in its latest annual review of financial stability.

Singapore worker
Office workers at Raffles Place in Singapore. (Photo: AFP/Roslan Rahman)

SINGAPORE: While the overall employment outlook is set to improve next year, wages are unlikely to increase rapidly as existing slack in the market will take time to be absorbed, said the Monetary Authority of Singapore (MAS) on Thursday (Nov 30) in its latest annual review of financial stability.

Coupled with expectations of higher interest rates ahead, households in Singapore should remain prudent in managing their finances even as household balance sheets are strengthening on the back of an economic recovery, the central bank added.

In particular, households considering property purchases should "pay heed to the large upcoming supply of private housing units and factor in how that may affect demand-supply conditions, vacancy rates and rental yields in the medium term". 

"While household debt growth remains in line with income growth over the past year, households should take into account their ability to service their debt in the longer term," wrote MAS, referring to the stabilisation of the household debt-to-income ratio at 2.2 times since 2013.

"Potential property investors should be aware that the subdued rental market and further interest rate hikes could weigh on borrowers’ debt servicing ability," it added.


MAS noted that corporate profitability has remained "broadly stable" on the back of improvements in the global economy though some sectors, such as domestic-oriented firms and those in the marine & offshore engineering subsector, continued to face pressure.

While its stress test suggests that most corporates are able to withstand interest rate and earnings shocks, firms should continue to guard against potential balance sheet vulnerabilities as higher interest rates could weigh on their debt servicing abilities, it said.

Firms should also continue to enhance their corporate governance frameworks and stakeholder engagement practices amid an increasingly competitive and uncertain landscape, the central bank added.

As the recovery in the economy gains traction, MAS noted that Singapore’s banking system remains resilient, with local banking groups having robust capital and liquidity positions that are well above MAS regulatory requirements.

Domestic and regional lending has also rebounded.

However, while overall asset quality has improved, local lenders continue to face heightened credit risks from the marine & offshore engineering subsector, said the central bank. Foreign currency funding pressures have also risen alongside growing cross-border exposures, it added.

As such, MAS urged banks to "continue to maintain sound credit underwriting standards and actively monitor their borrowers’ financial health", as well as "stay vigilant" in managing their foreign currency funding risks as they expand in the region.


Beyond Singapore, medium-term vulnerabilities persist despite strengthening in the world economy.

While gradual monetary policy normalisation in developed markets remain supportive of global growth, accommodative financial conditions have also facilitated financial excesses amid persistent search for yield. This raises the risk of disruptive corrections when the excesses are unwound, MAS wrote.

"A normalisation process that is not carefully calibrated could remove necessary support for sustained economic recovery, leading to shifts in market sentiment and highlighting vulnerabilities in emerging markets."

Within the region, China has so far managed to shift its focus to addressing financial stability risks while still achieving firm economic growth. Still, the central bank noted that “close monitoring is warranted” given potential spillover effects on the global economy and financial markets.

MAS also sounded a warning on geopolitical risks and unexpected policy shifts in advanced economies that may trigger a market correction and increased risk aversion, with correlated pullbacks from emerging markets.

These could derail global growth, it wrote in its annual report on Singapore's financial health.

MAS deputy managing director Ong Chong Tee said: “Near-term financial stability risks may have receded with the stronger global economy. However, financial institutions, households and corporates should remain vigilant to the risks highlighted in the report, including the impact of rising interest rates, geopolitical developments, and excessive exuberance in the property market.”

Source: CNA/mn