Singapore should still see real wage growth in 2025, but probably less than in 2024

SINGAPORE should see sustained real wage growth in 2025, as inflation cools and productivity gains allow for higher nominal pay. But whether this is better or worse than in 2024 remains uncertain.

Observers are split on the magnitude of wage growth in the coming year, given lingering uncertainties in the external environment, such as US president-elect Donald Trump’s planned tariff hikes.

According to official data that takes June as the reference point, real income growth in 2024 was 3.4 per cent, recovering from a decline of 2.2 per cent in 2023.

Economists are divided on whether 2025 will beat this figure.

This is chiefly due to uncertainty over nominal wage growth rather than inflation. With Singapore’s economic growth expected to moderate in 2025, nominal wage growth may also slow.

Economist Intelligence Unit (EIU) Asia economist Tan Wen Wei said: “With our expectation that economic growth and inflation will moderate in 2025, wage pressures will reduce as compared to (2024).

“A slower economy, compared to 2024, will weigh on employment growth as labour market tightness continues to ease into 2025.”

While Singapore’s labour market remains tighter than in pre-pandemic times, it has eased considerably from the peak in 2022 to early 2023.

Job vacancies fell to 63,400 in September, down from 81,200 in June, the latest Ministry of Manpower (MOM) data showed.

The ratio of job vacancies to unemployed persons also fell. In September, it was 1.39, a step-down from 1.69 in June.

Less erosion

Economists agree that inflation should cool further in 2025, meaning that wage gains are eroded less.

The official forecast for headline inflation, used in calculating real wage growth, is 1.5 to 2.5 per cent for 2025, down from the full-year forecast of around 2.5 per cent in 2024.

Oxford Economics economist Sheana Yue believes that Trump’s tariffs are unlikely to have an inflationary effect in the coming year.

“The legislative process required to pass through higher tariffs suggests it could take approximately a year to be implemented, so we are unlikely to see much inflationary pressure from that front in 2025,” she said.

The question, then, is whether this easing in inflation will make up for a slowing of nominal wage growth.

Despite the sanguine outlook for inflation, she expects Singapore’s real wage growth to be 2.8 per cent in 2025 – still worse than in 2024.

Similarly, UOB senior economist Alvin Liew forecasts real income growth of around 2 to 2.5 per cent in 2025, a step-down from 2024, due to downside risks to growth.

He said: “We think there’s uncertainty in the external environment and how markets might react to (Trump’s planned trade policies), so we will be more on the wary side.”

In its latest macroeconomic review report in October, however, the Monetary Authority of Singapore (MAS) said that there could be “stronger real wage gains” as improved labour productivity growth tempers the price impact of wage cost increases.

Nominal weakness

With the labour market set to cool further, so will nominal wage growth, said economists – though the rate is still expected to remain above pre-pandemic norms.

In Q3 2024, nominal wage growth was 4.1 per cent, declining from the “unexpectedly high” 6.4 per cent in the previous quarter, according to MAS’ macroeconomic review.

The central bank expects it to ease further in 2025, but settle “slightly above the pre-Covid norm on account of manpower constraints and policies to raise the relative wages of lower income workers”.

Oxford Economics’ Yue said: “We are also of the view that nominal wage growth will continue to slow in the coming years, but that it will remain above the pre-pandemic trend for some time.”

She has forecast full-year nominal wage growth of 4.6 per cent for 2024, and 4.5 per cent for 2025.

However, at least one recruiter expects existing workers to get better pay hikes in 2025. This is in contrast to muted expectations for nominal wage growth, which is calculated by the change in average income.

According to a survey by professional services firm Aon, which polled 950 companies across South-east Asia, employers in Singapore have budgeted salary increases of 4.4 per cent in 2025, up from 4.2 per cent in 2024.

In a survey by Randstad, 43 per cent of Singapore employers surveyed are planning pay raises of 2 to 3 per cent.

Another 17 per cent plan to raise salaries by 3 to 5 per cent; 17 per cent are planning hikes of 5 to 10 per cent, and 2 per cent are planning increases of 10 per cent or more.

The remaining employers are either hiking salaries by just 1 to 2 per cent, or have not decided on how much to give.

A survey by recruitment firm Robert Walters found that employees who remain at their current jobs can expect their salary to increase by 2 to 5 per cent. But those who are switching jobs can expect increases of 12 to 15 per cent, up from 10 to 15 per cent in 2024.

Sectors to watch

Even if there is stronger real wage growth in 2025, this is likely to be sectoral-dependent, said EIU’s Tan.

Firstly, lower-wage workers in sectors such as retail, food services and cleaning – who benefit from government policies such as the Progressive Wage Model – will get bigger wage gains.

The National Wages Council’s recommendation to give lower-wage workers a monthly pay raise of 5.5 to 7.5 per cent may also encourage some employers to raise salaries, said Tan, though the impact may be limited since it is not mandatory.

Sustained wage pressures may also be felt in sectors with structural shortages and persistent demand for manpower, such as healthcare, as well as info communications and technology, said Tan.

Higher-skilled employees in growth sectors such as finance should also see good real wage gains, he added.

Agreeing, Moody’s Analytics associate economist Eugene Tan believes that the sectors with higher job vacancy rates, such as accommodation and IT, are likely to face greater pressure to raise wages.

Recruiters’ surveys do show higher wage rises for in-demand sectors.

Companies offering pay raises of 5 per cent or more in 2025 are those in technology (in particular, artificial intelligence and cybersecurity), financial services (in particular, fintech) and life sciences, noted Randstad Singapore country director David Blasco.

“This aligns with the natural expectation for high-growth, high-activity sectors to offer more competitive increments, more so if the industry and company exceeded expectations for the year.”

Aon’s survey found that the consulting, business and community services sector will offer the highest salary increase of 5.7 per cent in 2025.

This is followed by the energy sector at 4.4 per cent, and the retail, e-commerce, wholesale and hospitality sector, which will have a 4.3 per cent salary hike.

The Robert Walters survey found that workers switching to jobs in sectors such as artificial intelligence and data can expect pay raises of up to 20 per cent.

In contrast, trade-oriented sectors such as manufacturing and wholesale trade may have less room for wage growth, given expectations that the US and China will likely grow slower in 2025, said EIU’s Tan.

Randstad’s Blasco said industries that are resource-intensive, or have expensive inventories, are more likely to face tighter corporate budgets as they are more likely to be affected by inflation and interest rates.