Chart of the Day: Singapore's productivity growth feared to slow further

On back of modest GDP outlook.

According to Nomura, the Singapore Ministry of Trade and Industry‟s (MTI) outlook for Singapore‟s economy in 2014 remains relatively modest. It expects a global demand recovery to lift exports demand, but “some labour-intensive domestically-oriented sectors may see their growth weighed down by tightness in labour market conditions”. 

Nomura shares this view and expect productivity growth to slow further, and not just in domestically-oriented sectors (see chart).

Here's more:

This is consistent with a recent study done by the MTI, which concluded that an increase in the utilisation of low-skilled foreign workers has resulted in a reduced use of machinery in the manufacturing industry. This, in turn, has depressed productivity levels of manufacturing firms, which are externally-oriented.

Through a reduction in the dependency ratio ceiling (DRC) of foreign workers and scheduled increases in the foreign workers levy, the government has started reducing the reliance on foreign workers in an attempt to boost the low productivity growth.

However, we expect the near-term curb on foreign workers to initially result in even lower productivity growth and higher wages across most sectors.