Economists optimistic on Q3 employment outlook despite Q2 setback

THOUGH tighter Covid-19 curbs took a toll on Singapore's total employment in the second quarter, the labour market situation is expected to improve in the third quarter, said economists, responding to the Ministry of Manpower (MOM) flash figures on Friday.

However, that is assuming that heightened measures and border controls are eased in the coming months, they added.

"Further progress from here for the job creation and unemployment rates would still be heavily dependent on the Covid versus vaccine developments," said OCBC head of treasury research and strategy Selena Ling.

Total employment rose in Q1 after a year of declines in 2020, but fell again in Q2 by 15,700, as a slower rise in resident employment only partly offset a continued fall in non-resident employment.

MOM attributed the slower resident employment growth to declines in domestically-oriented sectors hit by Phase 2 (Heightened Alert) measures, such as food and beverage services and retail trade.

In contrast, resident employment continued to grow steadily in outward-oriented sectors such as information and communications; professional services; and community, social and personal services.

Meanwhile, non-resident employment declined more sharply across most sectors, as departing workers were not replaced due to border restrictions. The construction industry, which has been notably affected by entry curbs, saw employment levels fall by 5,200.

Asked if the re-imposition of Phase 2 (Heightened Alert) in July might weaken the labour market in the third quarter, MOM permanent secretary Aubeck Kam said that a similar effect may possibly be expected.

But he added that it depends on how the Covid-19 situation will develop in the rest of the third quarter, with vaccination affecting how much economic activity, particularly for domestic services, will be able to catch up: "There is still much to play for in Q3."

The return of tightened measures between July 22 and Aug 18 "may slightly dampen business sentiments and consumer confidence in the short term", said Ms Ling.

"However, there are hints that some restrictions may be relaxed for those who are vaccinated so it is still likely that the domestic labour market will continue to heal and gradually improve for the rest of this year, especially if international borders partially open," she added.

Maybank Kim Eng economist Chua Hak Bin similarly expects that the relaxation of heightened measures and border controls in late August or early September, when the relevant vaccination milestone is reached, "will help turn the tide and revive job growth for the rest of the year".

Friday's flash figures did not include specific figures for the respective changes in resident employment and non-resident employment. The fuller Labour Market Report Q2 2021 will be released in mid-September, with more details such as resident and non-resident employment, sectoral breakdowns, and re-entry rates for retrenched residents.

Though employment levels were down, unemployment rates continued to improve. Overall unemployment edged down to 2.7 per cent, from 2.8 per cent before.

Resident unemployment fell to 3.7 per cent, from 3.8 per cent before, while citizen unemployment fell to 3.8 per cent, from 4 per cent before.

In June, there were 86,600 unemployed residents, down from 95,500 in March.

While retrenchments rose in the second quarter, the incidence was comparable to pre-Covid levels. MOM said that based on latest survey returns to date, about 2,500 retrenchments are expected to have happened in Q2, up from 2,270 in Q1.

The rise was mainly due to an uptick in lay-offs in manufacturing - 900 retrenchments, up from 320 the previous quarter - and construction, with 100 layoffs, up from 20.

Services still accounted for the bulk of layoffs at 1,500, but this was fewer than the 1,930 in Q1.

"In sectors directly impacted by the tighter restrictions, such as food and beverages services, no notable increases were observed," said MOM.

The likelihood of retrenchments in Q2 is expected to be 1.3 retrenchments per 1,000 employees, similar to the 1.2 rate in Q1 and comparable to pre-pandemic levels in 2018 and 2019.

But hiring intent has been dampened, which MOM said might be due to the rise in Delta variant Covid-19 cases globally as well as Phase 2 (Heightened Alert). Of companies polled in June 2021, 64 per cent said they had plans to hire, down from 73 per cent in March.

Manpower Minister Tan See Leng said that the months ahead are expected to be challenging, with the continued restrictions on foreign worker inflows "expected to weigh on the pace and evenness of recovery for the labour market". But he encouraged firms and workers to press on, adding that the government will continue to support companies and employees to pivot to new opportunities, and support local hiring via the Jobs Growth Initiative.

Asked if growth sectors will be able to make up for the weaker domestic sectors, Dr Tan said that employment growth in the first two quarters of the year has been promising, and if the upward trajectory continues in this quarter despite Phase 2 (Heightened Alert), it is likely to be sustained.

Maybank's Dr Chua flagged the risk that manpower supply-side issues might hurt economic growth: "The growth recovery may run out of steam in the second half if hiring continues to be hindered by heightened measures and stricter border controls."

Maybank's projection is for total employment to grow by 50,000 to 100,000 for the full year, but the figure may come in at the lower end, he added.

Still, if heightened measures and border controls are indeed relaxed by the end of August, then employment figures should improve on Q3, he said.

For the first time, this quarter's survey polled companies on their plans to raise wages, with 32 per cent indicating that they intend to raise wages within the upcoming three months.

This suggests business optimism regarding the economic recovery, but also a tight labour market exacerbated by strict border controls, said Dr Chua.

"As we head into the seasonally stronger half of the year, labour market conditions should improve further, especially toward year-end, due to festive demand," said CIMB Private Banking economist Song Seng Wun, who sees reason to be optimistic about year-end bonuses and increments.

Referring to business expectations surveys also released on Friday, he noted that some sectors were clearly doing well, such as finance and insurance, and wholesale trade. "On the manufacturing side, factories are getting busier as they usually are before Christmas," he added.

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