SINGAPORE — Wage cuts rather than retrenchments will be the main impact on workers here from the looming Covid-19-driven recession, although unemployment is still expected to rise, the Monetary Authority of Singapore (MAS) said on Tuesday (April 28).

Workers in retail, the food-and-beverage sector and recreation services are the most vulnerable to being laid off, MAS said in its latest twice-yearly macroeconomic review. The central bank noted, however, that “unprecedented” government measures would keep many workers in jobs.

It also said that Singapore’s economy could shrink even more than expected if “downside risks” materialise, such as more stringent measures to contain Covid-19 or a longer-than-expected period to control the virus.

MAS reiterated the Trade and Industry Ministry’s earlier projection that Singapore's economy will contract between 1 and 4 per cent this year.

By comparison, MAS looked to the last three economic crises faced by Singapore. It noted that in 2009, the local economy eked out 0.1 per cent growth in the aftermath of the global financial crisis, shrank 1.1 per cent in 2001 after the dot-com bubble burst, and contracted 2.2 per cent in 1998 during the Asian financial crisis.

Economists downgraded their growth forecast for Singapore yet again when Prime Minister Lee Hsien Loong announced that the circuit breaker measures would be extended by another four weeks, with many estimating that the economy may contract by more than 4 per cent.

DBS Bank economist Irvin Seah estimated that about 45,600 workers will lose their jobs this year, in a report published on Monday.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye produced an even higher estimate of between 150,000 and 200,000 job losses in an earlier study.

With oil prices plunging and spending by Singaporeans muted, MAS also expects inflation to turn negative this year, although prices of imported food could increase owing to supply chain disruptions brought about by lockdowns worldwide as governments try to curb the spread of Covid-19.

MAS expects both its measures of inflation to come in between -1 per cent and zero, the first time they have turned negative since 2002.

The central bank uses the term “disinflationary pressures” to refer to the outlook for inflation here, rather than “deflation”, which is a longer-term problem that economists sometimes call an “economic death spiral” as people stop spending money and wait for prices to fall further. It was a key feature of Japan’s “lost decade” in the 1990s.

WAGE CUTS AND JOB LOSSES

As the economy comes to a “temporary shutdown” to slow the spread of the virus, MAS said demand for labour would decline significantly.

This is especially so for industries most affected by the crisis, including travel-related ones as well as services for consumers, such as retail, food services and land transport.

Employment growth will also weaken in the trade-related sector as demand for Singapore-produced goods around the world, such as electronics, declines, since the effects of Covid-19 have been felt almost everywhere. 

This will have knock-on effects on employment in the maritime and aviation industries.

Job prospects in the transport equipment and other related services will also be dampened because of the plunge in oil prices.

In the financial sector, job gains are also expected to be muted as companies and individuals are not borrowing money as much, and volatility in the financial markets has dampened investor sentiment.

Only a “handful” of industries, such as construction, healthcare, public administration and education, are expected to expand their headcount.

Despite the Government’s measures to help companies cut costs, such as subsidising workers’ wages through the Jobs Support Scheme, MAS said that some would still have to undertake cost-cutting measures, such as making their employees do shorter workweeks or take no-pay leave.

Some firms may also ask their staff to take a pay cut. It cited a recent Mercer Singapore survey showing that 3 per cent of firms here had cut salaries, while 5 per cent were considering that step. Only 1 per cent were contemplating retrenchments.

While the National Wages Council has urged firms to turn to retrenchments as the last resort, MAS said the large, abrupt shock to Singapore’s economy is still likely to cause retrenchments and unemployment to rise.

This is exacerbated by the fact that labour market conditions were already slightly weak before Covid-19. Firms that were in a weak financial position before the outbreak are also more likely to retrench workers, said MAS.

“Overall, the combination of a pullback in hiring and rise in retrenchments will likely cause the resident unemployment rate to step up,” the central bank noted in its review.

MAS also said that unemployment usually rises first before a higher number of firm closures is observed in the next quarter, suggesting that a spike in unemployment typically happens only when firms are about to shut down.

Thus, wage subsidies through the Jobs Support Scheme should forestall a large spike in unemployment in the near term, said MAS, and prevent spare capacity in the labour market from emerging — a term referring to workers without a job or working fewer hours than they would wish.