The government’s push to boost productivity while reducing reliance on foreign workers has led to a tight labour market and wage pressures that have helped push up core inflation.
Analysts say such restructuring efforts have weighed on economic growth, which is seen likely to slow this year compared to 2013. An advance estimate of third-quarter GDP showed that Singapore’s economy expanded 2.4% in July-September compared to a year ago.
“It’s the construction sector where the problem was, that was the main drag on the number. The service and manufacturing numbers look good. I expect the number will be revised higher, as we saw in the second quarter when the final month’s industrial production performed well,” said RBS economist Vaninder Singh
According to the Oversea-Chinese Banking Corporation, the construction sector posted particularly disappointing results. The construction sector saw a 2.7% quarter on quarter moderation from Q2 amid weaker private sector construction activities, representing the greatest decline since 2Q10.
OCBC states that there may not be light at the end of the tunnel at this juncture for the construction sector given the somewhat dovish signals from the sector, especially from the private sector construction side, coupled with the still tight foreign manpower policy focus on this sector due to its lackluster labour productivity performance.
It is plausible to see the construction sector continue to underperform in 4Q14, with either its 3rd qoq contraction or even a yoy contraction given the high base (+7.3% yoy) in 4Q13. Given that the first three quarters of 2014, the Singapore economy expanded by 3.2% yoy, and with 4Q14 growth tipped at 2.5% yoy,it looks likely that full-year growth may be closer to the 3% handle, rather than the 3.3% yoy that we initially estimated.
This would also be in line with the current 2.5-3.5% official growth forecast, which is predicated on the expected cyclical uplift from external demand and countered by the domestic supply-side constraints, namely manpower,” noted OCBC.