SINGAPORE'S economic growth is likely to remain subdued amid record tightness in the labour market, but the city-state will continue to outperform most of its developed world peers in terms of real economic growth over the coming decade, BMI Research said on Monday.
BMI, which is part of Fitch Group, is lowering its 2015 real gross domestic product (GDP) growth forecast for Singapore to 2.5 per cent, from 2.9 per cent.
In its economic analysis, BMI said while the economy's low unemployment rate is a testament to its underlying health, it also represents a major challenge for firms operating in labour-intensive industries such as manufacturing.
BMI noted that Singapore's manufacturing sector has been particularly volatile over the recent years, slipping in and out of contraction numerous times as the sector struggles to adapt to both domestic and external headwinds, including stiff competition from neighbouring Malaysia.
The scale of the erosion of competitiveness in labour-intensive industries was reflected in Singapore's 2015 budget, in which the government altered the pace of levy increases for some foreign workers at the low to mid-skilled levels in order to provide firms more time to adjust to the labour market's new normal. Both S Pass and Work Permit levies will be held at their current levels through 2016, providing a quantum of breathing room for firms in the construction and manufacturing industries.
BMI believes that this will provide only a temporary reprieve, and that the ongoing restructuring in the industry will continue to crimp overall industrial production growth and, by relation, export growth over the near to medium term.
"As such, we retain our downbeat forecast for real export growth to come in at just 2.6 per cent in 2015, acting as a drag on overall real GDP growth of 2.9 per cent," it said.
However, while Singapore's near-term economic outlook is subdued, its long-term real GDP growth forecast of 3.3 per cent per annum through 2024 is still among the strongest in the developed world.
"The economy is highly unlikely to regain its foothold in the most labour-intensive manufacturing sectors, but will continue to leverage off of a significant advantage in higher value-added industries owing to its region-beating education levels and robust business environment," BMI said.
It added that Singapore's economy remains the most attractive regional destination for the highly skilled immigrants which will continue to bolster its competitiveness as a hub for financial services, scientific research and technological development.
"In combination with the government's rock-solid fiscal position, we believe that Singapore will continue to outperform the majority of its developed world peers in terms of real economic growth over the coming decade," BMI said.
Note: Due to a source error, an earlier version of this story said that BMI is maintaining its 2015 real GDP growth forecast for Singapore at 2.9 per cent. BMI has since clarified that it is downgrading its forecast to 2.5 per cent.