Singapore’s Ministry of Trade and Industry has provided forecasts of -5% to -7% for the nation’s real GDP growth in 2020. Looking at the worst-case scenario of a 7% contraction this year, what can we learn of Singapore’s labour market dynamics, and what can be done to improve resiliency?
To put this forecast into perspective, the last time Singapore faced a full-year contraction was of -1.1% during the dotcom bust of 2001. The nation’s worst recession thus far was during the Asian financial crisis of 1998, where the national economy contracted by 2.2%. This year, the fall in GDP is a result of circuit breaker (lockdown) measures and weakening external demand amid the pandemic-induced global economic slowdown.
ACI research by Tan explores the concept of resilience amidst a “black swan event”. A black swan event refers to an event that is unexpected, and largely impactful. Namely, COVID-19, which has provided a convenient albeit unfortunate point in time to reflect on the resiliency of Singapore’s economy.
The model used in Tan’s research is based off the worst-case scenario of a 7% GDP contraction. It predicts short-term and long-term changes in employment resulting from macroeconomic cycles. The projected short-term loss of employment as a direct result of the 7% GDP contraction is approximately -2.74%, or 104 thousand persons. The long run projected figures determine approximately -4.8% loss of employment, or 158 thousand persons. The predictions may be an underestimation, giving indications of the resiliency of the employment in response to a “black swan event” and that the COVID-19 event has resulted in a fundamental change in the structure of the Singapore labour market.
The worst hit sectors were those directly impacted by the circuit breaker and travel industry. The construction, marine and offshore engineering sectors were also severely affected by manpower shortages linked to the outbreak of infections amongst foreign workers residing in dormitories, and supply interruptions from Malaysia. Moreover, a concerning finding is that the financial and insurance services contracted in Q2 of 2020, despite the sectors witnessing positive growth.
On the flipside, biomedical manufacturing, precision engineering, and the information and communications sector linked to the current need for digital solutions, have exhibited robust expansions this year.
It is important for policymakers to have sound labour market research to turn to, as it provides insights into the sensitivity of labour demands in Singapore to external shocks such as the current pandemic. Understanding the labour elasticity of the market facilitates the implementation of welfare policies, aids the assessment of recession impacts, and strengthens the handling of volatile financial and labour markets.
By Sunena GUPTA
Researcher: Kway Guan TAN