Singapore"s GDP Decline Shows Manufacturing Constraint: Economy

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

recovers.”

Photographer: Munshi Ahmed/Bloomberg

Employees assemble container refrigeration units manufactured by Carrier Transicold, a unit of United Technologies Ltd., in Singapore. Close

Employees assemble container refrigeration units manufactured by Carrier Transicold, a… Read More

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Photographer: Munshi Ahmed/Bloomberg

Employees assemble container refrigeration units manufactured by Carrier Transicold, a unit of United Technologies Ltd., in Singapore.

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.

Tighter Labor

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

education.

“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.

Manufacturing Slump

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

percent.

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.”

Global Growth

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

kyap5@bloomberg.net;

Brian Leonal in Singapore at

bleonal@bloomberg.net

To contact the editors responsible for this story:

Stephanie Phang at

sphang@bloomberg.net

Rina Chandran, Malcolm Scott

Singapore"s GDP Decline Shows Manufacturing Constraint: Economy