Singapore’s economy unexpectedly
contracted in the second quarter as higher labor costs and
company moves to shift production overseas hurt manufacturing.
Gross domestic product fell an annualized 0.8 percent in
the three months through June from the previous quarter, when it
expanded a revised 1.6 percent, the trade ministry said in a
statement today. The median of 17 estimates in a Bloomberg News
survey was for a 2.4 percent gain.
Manufacturers including Western Digital Corp. have moved
operations to other countries in recent years, as employers on
the island grappled with tighter rules for foreign labor that
have pushed up costs and crimped some companies’ ability to meet
a recovery in demand from the U.S. and Europe. Singapore’s
government has stepped up efforts to lure new industries such as
research and development as it reshapes the economy while
cutting reliance on cheap overseas workers.
“Economic activity is losing steam despite a healthier
global backdrop,” Chua Hak Bin, a Singapore-based economist at
Bank of America Merrill Lynch, wrote in a note after the GDP
report. “Restructuring appears to be failing. Growth is being
impeded by tight labor constraints even as global demand
The benchmark Straits Times (FSSTI) Index of stocks fell 0.1
percent as of 2 p.m. local time. The Singapore dollar was little
changed at S$1.241 against the U.S. currency. It has risen 0.5
percent so far this quarter. The central bank, which uses the
island’s dollar to manage price pressure, said in April it will
maintain a modest and gradual appreciation of the currency.
Singapore Prime Minister Lee Hsien Loong’s government has
tightened rules to curb the hiring of foreigners in recent years
after an influx led to voter discontent over infrastructure
strains and increased competition for jobs, property and
“Some pockets of the manufacturing sector are already
relocating,” said Irvin Seah, an economist at DBS Group
Holdings Ltd. in Singapore. “The manufacturing sector is facing
tremendous pressure from the restructuring.”
The Monetary Authority of Singapore expects wage pressure
to persist, with firms likely to pass on business costs, as a
result of the tight labor market, it said in April when it kept
its currency stance unchanged.
Basic wages excluding pension fund contributions rose 5.1
percent in 2013, the fastest pace in more than a decade,
according to government data that isn’t adjusted for inflation.
The jobless rate was 2 percent in the first quarter, compared
with an average 2.2 percent in the previous five years.
About 25 percent of U.S. companies plan to move operations
out of Singapore, rising from 12 percent last year, the
Singapore Business Review reported in February, citing the 2013
Manpower Survey Results of the American Chamber of Commerce.
The economy expanded 2.1 percent in the three months
through June from a year earlier, after growing a revised 4.7
percent in the previous three months, today’s report showed.
That compares with the median estimate of a 3.1 percent gain in
a Bloomberg survey.
Manufacturing fell 19.4 percent in the second quarter from
the previous three months, data showed. Services rose 5.2
percent in the same period, while construction gained 2.6
In an earlier report showing electronics production fell in
April from a year earlier, the government said semiconductor
output fell 11 percent because of a one-off “firm-specific
factor,” without elaborating.
“It’s part of this whole process of restructuring and
moving up the value chain,” said Michael Wan, a Singapore-based
economist at Credit Suisse Group AG. “Part of the reason of the
weaknesses is that we saw some offshoring of this electronics
factory in the second quarter.”
In a note to clients, Wan said the GDP report is unlikely
to spur the MAS to ease policy as the labor market remains
tight. The government in May reiterated its forecast for the
economy to expand 2 percent to 4 percent this year.
“Moving forward, we should see some pick-up in industrial
production as global growth improves,” said Wan. He expects the
economy to rebound in the third quarter and predicts growth of
3.4 percent this year.
The advance GDP estimates for the second quarter are
computed largely from data in the first two months of the
quarter. They are intended as an early indication of GDP growth,
and are subject to revision when more data becomes available.
To contact the reporters on this story:
Karl Lester M. Yap in Manila at
Brian Leonal in Singapore at
To contact the editors responsible for this story:
Stephanie Phang at
Rina Chandran, Malcolm Scott
Singapore"s GDP Decline Shows Manufacturing Constraint: Economy