Labour market could ease in 2023 after tightness last year: Analysts

Noting that the labour market was still tight in the last quarter of 2022, Citi analysts Kit Wei Zheng and Jester Koh believe there is “limited concern” on a deterioration in 2023. “Despite higher retrenchments and slower inflow of foreign workers, the job market remained tight in 4Q2022, with unemployment rates at pre-Covid lows. Despite headwinds, policymakers do not seem overly concerned about a sharp deterioration in the job market in 2023,” they say.

The way they see it, tightness could be easing in line with, or even more slowly, than the Monetary Authority of Singapore’s (MAS) October expectations. “Our base case remains for a final MAS tightening in April,” they add, noting that they expect to see a 0.5% to 1.0% surplus of GDP in the Feb 14 Budget 2023 announcement.

Preliminary estimates showed retrenchments are expected to rise to 3,000 in 4Q2022, compared to the lows of 1,300 and 800 in 3Q2022 and 2Q2022 respectively — but remained within the quarterly range in 2019 of around 2,100 to 3,000. Retrenchments were concentrated mainly in externally oriented sectors such as electronics, wholesale trade and infocomm, say Kit and Koh.

“While MOM noted retrenchments could still be elevated in coming quarters, they are unlikely to spike as labour demand remains strong,” they add.

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Meanwhile, excluding migrant domestic workers, total employment increased for the fifth consecutive quarter by 47,400, although it slowed from 75,800 in 3Q2022, with total employment exceeding 4Q2019 levels by 3%. The 4Q2022 increase was led by services and construction with a further moderation in manufacturing employment growth to 2,300 in 4Q2022 from 11,900 in the preceding quarter.

MOM says that while non-resident employment growth, concentrated in the construction sector, contributed most to the increase in jobs, its growth has also moderated considerably from the highs of earlier quarters as the non-resident employment level approaches that of December 2019. “At this stage, it is less clear whether the slowdown in foreign employment growth reflects more a slowing of demand, or supply constraints that are possibly policy induced,” note Kit and Koh.

Resident employment saw a pickup amid hiring for year-end festivities in the food and beverage (F&B) and retail trade sectors.

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For overall and citizen unemployment rates, there was a slight uptick to 2.0% and 3.0% in December 2022 from 1.9% and 2.9% respectively in November 2022, while the resident unemployment rate remained unchanged at 2.8%, still at or below pre-Covid levels. Importantly, all measures of unemployment were 0.1 percentage point lower in December 2022 than in September 2022, when they last saw an uptick, say the Citi analysts.

Meanwhile, the number of unemployed residents fell to 67,400K in 4Q2022 from 70,800 in 3Q2022. MOM noted that while unemployment rates could trend higher in 2023 with the uptick in retrenchments, it is expected to remain within its pre-Covid range.

Kit and Koh add that MOM’s surveys show that a majority of firms reported intentions to hire in the next three months, although the share has dipped to 64.6% in 4Q2022 from 69.3% in the preceding quarter. “With the proportion of firms with intention to raise wages moderating to 25.3% from 27.1% in 3Q22, MOM noted that the risk of an ‘ensuing wage-price spiral’ remains low. MOM also noted that the projected slowdown in economic growth in 2023 would likely have some impact on the momentum of labour market improvements,” they say.

RHB Group Research senior economist Barnabas Gan adds that he expects the labour market to face headwinds with an increase in unemployment rates in 1H2023, in line with his call for gross domestic product (GDP) momentum to decelerate over the same period.

“We keep our 2023 GDP growth forecast at 3.0%, against an official estimate of between 0.5% to 2.5%. We expect growth momentum to decelerate into 1H2023 before stabilising in 2H2023, amid softness already seen in the global trade demand and weaker manufacturing activity,” says Gan.

Importantly, he notes that he does not expect a technical recession, defined as two consecutive quarters of negative growth, in 1H2023.

He is forecasting Singapore’s unemployment rate to increase marginally to 2.4% in 1H2023, before recovering to its 2.0% handle by end 2023. “The expected increase in the unemployment rate to 2.4% in the next six months remains starkly below the 3.4% rate seen in 3Q2020 during the Covid-19 pandemic. Moreover, today’s data do not spell any recessionary cues but rather underline the continued tightness seen in Singapore’s labour market — total employment rose to its record level in 2022, while hiring sentiments remain positive, as cited by company poll,” says Gan.

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With Singapore’s economic recovery likely to stay uneven into 2023, he says this will impact labour demand, especially in the external-facing industries. Gan believes that labour demand in electronics, chemicals, precision engineering and wholesale trade will remain lacklustre into 1H2023, given the potential trade headwinds in these sectors over the same period.

“However, with the sustained recovery expected for the services sector as Asia’s border restrictions ease further, we think some reprieve may be seen in higher labour demand in the hospitality, retail sales, and F&B sectors,” he adds.

Gan notes that he believes the upcoming Singapore Budget announcement could also include policies to cushion the ongoing economic softness and help the unemployed. “We do not discount the introduction of unemployment support for retrenched workers in FY2023. However, this should include specified prerequisites such as having a minimum period of full-time work before retrenchment, property ownership of below a specific annual value and showing efforts to seek re-employment after retrenchment.”

“We expect some support for displaced workers to empower them with the needed skills to stay relevant in tomorrow’s world. The need for more policy support to encourage reskilling to us is crucial, given the recent rise in retrenchment in specific industries,” he adds.