WEAKNESS in the labour market came to the fore in Singapore central bank's twice-yearly review of macroeconomic conditions, with slower wage growth and a rising resident unemployment rate expected this year.
But while softening labour demand and supply continue to dull inflationary pressures, they have already been factored in by the Monetary Authority of Singapore (MAS) in its latest policy move, said economists The Business Times spoke to.
"MAS has already pencilled in this sluggish labour market in its latest policy move, so unless the labour market or external environment deteriorates significantly, we should expect MAS to maintain current policy settings," said Ng Weiwen, economist at ANZ.
In its biannual Macroeconomic Review, released on Wednesday, MAS said it expects wage growth to "soften from 3.5 per cent in 2015 to about 2.5 to 3 per cent in 2016". Resident unemployment rate and redundancies in some sectors will also creep up.
The Ministry of Manpower will release on Thursday an advance copy of the labour market report for the quarter ended March 31, 2016.
MAS had first expressed its concerns about the weakening labour market in its April 14 monetary policy statement, but did not list projected figures.
In the same statement, MAS stunned market-watchers with a shift to a neutral policy stance of zero per cent appreciation of the S$NEER (Singapore dollar nominal effective exchange rate) band.
Taken together, the statement and the full review reflected a central bank that is now more guarded in its economic outlook, with the labour market flagged as a rising concern.
MAS noted that cyclical and structural factors have softened labour demand, with overall job gains at 32,300 in 2015, a far cry from 2014's 130,100. Productivity gains has also staved off demand for labour.
On the supply side, residents who have been laid off are finding it more difficult to re-enter the workforce within six months, with the mismatch in skills listed as a possible factor. Tightening foreign worker policies also capped foreign labour supply growth.
All these point towards loosening pressure in the labour market.
MAS' labour market pressure indicator - a statistic based on 31 indicators - showed that tightness had eased to 0.33 in H2 2015, from 0.44 in H1.
"Looking ahead, overall headcount gains will remain modest, alongside a weak cyclical environment, intensifying industry reconfigurations in some sectors and increasing skills mismatches within the resident workforce", wrote MAS, resulting in softening wage pressures and rising resident unemployment rate.
All these will affect aggregate demand in the economy, said UOB economist Francis Tan.
"The key thing is that we all want to survive - workers will spend cautiously because they are scared of being laid off; companies don't want to raise prices because they already are not getting much business. This will put a cap on core inflation," he said.
MAS reflected this assessment in its review, saying that projected pick-up in core inflation in 2016 will not likely come from pick-up in aggregate demand.
To be sure, MAS made it clear that "the Singapore economy is not expected to experience a recession or widespread price declines" this year.
But it now sees core inflation coming in the lower half of the 0.5 to 1.5 per cent forecast range.
Uptick in core inflation will, however, be driven by "smaller price declines in the components of the consumer price index (CPI) basket", wrote MAS.
As disinflationary pressures from fiscal measures wear off, and as oil prices start to slowly rise, MAS sees it fit to ease policy stance slightly in mid-April "to secure medium-term price stability".
This latest stance follows recent "measured steps" that MAS had taken in January and October 2015, when the slope of the S$NEER band was decreased, it said.
These three moves can be seen as the central bank tackling weakening imported and domestic inflation, said economists.
While some signs of stability in macroeconomic conditions seem to be emerging, observers are still mulling over the next step MAS will take to counter price pressures. Most say a re-centring of the S$NEER band is on the cards should conditions worsen.
A smaller proportion are going into unchartered territory in flirting with the idea of a negative slope.
This thought is even more poignant now, as the Bank of Japan - one of the handful of central banks to put interest rates at negative - will issue another decision today.
But such a move will have severe consequences for Singapore's economy and even politics, said Mizuho economist Vishnu Varathan.
"For the S$NEER slope to go into reverse - it would almost be us conceding that we are into negative productivity, where we are losing competitiveness drastically," he said.