Q1 labour market figures better than expected, but real storm is still ahead, economists say
SINGAPORE: Amid the grim economic forecast, Singapore's first quarter employment figures were better than expected, said analysts, although they cautioned that the labour market will continue to weaken due to the COVID-19 pandemic.
In its latest labour market report released on Wednesday (Apr 29), the Ministry of Manpower (MOM) said that the overall unemployment rate rose over the quarter in March from 2.3 to 2.4 per cent. Retrenchments also rose from 2,670 in the previous quarter to 3,000. These figures remains lower than in previous downturns, noted the ministry.
Total employment, meanwhile, fell by 19,900 in the first quarter of this year, due to a significant reduction in foreign employment.
The figures outperformed their forecasts, economists said, given that the unemployment rate and retrenchments only saw a slight increase from the previous quarter.
However, they warned of worse to come.
“The peak of the labour market downturn will only come a few quarters later,” said HL Bank’s senior treasury strategist Jeff Ng, who had estimated a 2.5 per cent jobless rate.
He pointed to downturns during the 2003 SARS outbreak and the financial crisis in 2008 and 2009 as indicators of how COVID-19 will damage the labour market.
Overall unemployment rates spiked from 3.7 per cent in March 2003 to 4.8 per cent in September that year. During the financial crisis, the unemployment rate rose from 2.3 per cent in September 2008 to 3.3 per cent a year later.
READ: Retrenchments and withdrawn job offers: Singapore's labour market shows signs of COVID-19 strain
Economists said that the Budget policies this year - particularly the Jobs Support Scheme - have helped most enterprises reduce or delay job cuts.
But even with these measures, companies are facing more severe economic headwinds in the second quarter - and possibly beyond, said Professor Kim Sun Bae of the NUS Business School.
This comes as the Monetary Authority of Singapore (MAS) said in a report on Tuesday that Singapore is expected to slide into a recession this year, possibly its worst. Economic growth may fall below the forecast range of -4 to -1 per cent.
“Circuit breaker” measures in the second quarter of the year have put more than 1.3 million workers in “hibernation” and left companies under severe cash flow pressures, said Maybank’s senior economist Chua Hak Bin. He and his colleague Lee Ju Ye had previously predicted 200,000 retrenchments in Singapore this year.
While the Government will subsidise 75 per cent of wages for April and May, allowing many companies to keep their workers during this period, layoffs are likely to jump when the wage subsidies fall to 25 per cent for most sectors after the circuit breaker, Mr Chua said.
“Firms will have to scale their actual staff needs to the new economic reality, without the protective shield of wage subsidies,” he said.
Mr Chua added that employment will likely contract by about 80,000 to 100,000 in the second quarter - at least four times more than the first quarter - and will remain high in the third quarter.
WHICH INDUSTRIES WILL FACE GREATEST JOB LOSSES?
The service sector, which accounts for about 75 per cent of total employment in Singapore, will see the greatest impact, said Prof Kim, especially retail trade, hospitality, food services, as well as transport businesses.
Employees in industries where working remotely is off the table, like those in wholesale trade and transport and storage, will also be badly affected as business effectively comes to a standstill, said Mr Ng. Those in the energy sector may lose their positions as oil prices have plunged.
“Even the construction and manufacturing sectors are also impacted since only essential services are still operating under the ongoing circuit breaker,” said OCBC Bank’s head of treasury research and strategy Selena Ling.
“And with many economies also in lockdown mode both globally and regionally, there has been disruption to the global supply chains and manpower,” she added.
On the other hand, the healthcare, public administration, professional services and technology sectors will remain resilient during this crisis, the economists said.
ARE WAGE SUBSIDIES ENOUGH?
While the Jobs Support Scheme has done much to buoy companies so far, it will be impossible to eliminate job losses, they said.
A weekly poll by MOM showed that 77 per cent of companies polled between Apr 13 and 17 indicated they would not reduce their headcount over the next two months, a decline from 84 per cent of companies polled between Mar 23 and Mar 27.
Over the same period, the proportion who indicated they have no intention of reducing salaries also fell from 85 per cent to 71 per cent.
A separate report conducted by professional services firm Aon in April found that 4 per cent of the 196 organisations surveyed have reported layoffs, while another 21 per cent are considering letting people go.
Similarly, 8 per cent of the companies have furloughed employees and 21 per cent are looking to do so, the study showed. And about a fifth of them are delaying or cancelling salary increments, and 30 per cent have frozen hiring.
READ: MAS expects more job losses, wage cuts as economy deals with ‘large, abrupt shock’ from COVID-19
For some industries like aviation, wage subsidies are not enough to cushion them, said Mr Ng. Unlike other industries, it will take aviation at least a year to recover. While this sector will continue to get a 75 per cent wage subsidy from the Government under the Jobs Support Scheme, aviation companies will still be tight on cash if they have to pay the remaining 25 per cent of wages as revenue has fallen to near-zero figures.
Travel demand might take about two to three years to recover to levels seen before the COVID-19 outbreak, said Mr Chua.
The Jobs Support Scheme is also designed to retain local employees, Prof Kim noted. Non-resident employees, who account account for nearly 40 per cent of Singapore’ labour force, will bear the brunt of layoffs.
This was already seen in first quarter’s total employment figure, which shrunk largely due to a reduction in foreign employment, MOM reported.
If the circuit breaker period is further extended beyond Jun 1 but without government aid, employers will inevitably have to let some people go, especially among smaller firms, said Ms Ling.
WILL EASING LOCKDOWNS HELP?
Even as countries around the world begin to lift restrictions, it will still take time for business activities to pick up, the economists said.
For one, lockdown measures are being removed gradually. Most employers will likely tread carefully in the current landscape until the COVID-19 spread is under control.
And even if production is ramped up, consumers might hold back, Mr Ng said, citing China as an example where consumers are still wary to go outside although borders are reopening.
Business sentiments will continue to remain fragile if private consumption does not recover in the second half of 2020, Ms Ling said.
WHAT WILL IT TAKE TO SAVE JOBS?
Mr Ng said that the Government has already made a comprehensive effort to protect jobs through its three rounds of budgetary support.
What is primarily needed now is beyond the employers’ control - to contain the virus, and to successfully develop a vaccine.
“Even if you give temporary support … it still doesn’t solve the underlying issue, which is that if the cases continue to climb or the situation doesn’t (abate), there will be a lot of pessimism ahead,” he said.
The good news is that most forecasts, including MAS’, see the economy bottoming out in the second quarter of this year, followed by a pickup in the second half of the year, said Prof Kim.
This is also the current baseline or consensus forecast for other economies, including the US and China, he added.
A recovery - and therefore mitigating retrenchments - will depend on how the global economy performs, said Alexander Krasavin, Aon's partner and chief commercial officer for human capital solutions for Asia Pacific and Middle East.
“I hope with our diversified economy we can bounce back quickly, especially in the services sector,” he said. “As countries open up again, Singapore will benefit.”
What workers can do now, Mr Krasavin said, is to tap training programmes including those offered under Skillsfuture Singapore.
Technology knowhow, as well as “soft” skills in leadership and communication are always in demand, he said.
“Invest in yourself … it’s short-term pain but (produces) long-term rewards.”