News analysis

Singapore recession deepens: Weak economy, high uncertainty mean hard adjustments

Gloomy economic prognosis is bad news for the job market, and efforts must continue to cushion impact on workers

The economy has probably bottomed out, but there's still a long way to go before a recovery appears on the horizon or the jobs situation returns to anywhere near normal.

That's the main takeaway from the second-quarter gross domestic product (GDP) numbers released yesterday, combined with the first-ever jobs situation report.

The GDP growth numbers for the second quarter were expected to be bleak but they have turned out even bleaker than the advance estimates released last month had indicated.

On a year-on-year basis, the economy contracted 13.2 per cent, compared with 12.6 per cent as per the earlier estimates, while the quarter-on-quarter contraction on a seasonally adjusted annualised basis was 42.9 per cent, even steeper than the 41.2 per cent forecast previously.

These unusually dismal numbers - and particularly the outsized quarter-on-quarter decline - are largely a reflection of the circuit breaker, which lasted from April 7 to June 1 and brought large parts of the economy to a virtual standstill, particularly the construction sector and several services.

Barring a reimposition of the circuit breaker - which, we can now be cautiously optimistic is unlikely to happen - the economy should start to rebound in the second half of the year, as some pent-up demand reappears.

But a rebound from a low base should not be confused with a recovery - the economy is still going to end up with negative growth this year - minus 7 per cent to minus 5 per cent, according to the revised forecast.

As the Ministry of Trade and Industry cautioned, the outlook remains clouded by a weak external economic environment which will weigh on many export-related industries; a slower than expected reopening of international borders, which will keep sectors such as tourism and aviation all but shuttered; and labour shortages in sectors such as construction that are highly dependent on foreign workers, who account for most of the Covid-19 infections so far, and many of whom have yet to resume work.

Added to this list are other uncertainties such as the possibility of new waves of Covid-19 infections, which have occurred even in countries that were believed to have controlled the pandemic; the ratcheting up of US-China tensions, which have spilled into areas beyond trade and could further depress economic sentiment; an acceleration of de-globalisation and more disruptions to supply chains; and the possibility of the global economic crisis spreading to the banking and financial sectors.

Besides, even when economies reopen, consumer behaviour as well as corporate investment is likely to remain restrained, which would limit the positive impact - and this could be true of Singapore too.

This gloomy economic prognosis is bad news for the job market. As the jobs situation report cautions, "softness in the labour market is likely to persist with continued weakness in hiring and pressure on companies to retrench".

So the unemployment rate which climbed from 2.4 per cent in the first quarter to 2.9 per cent in the second will likely rise further, despite intensified efforts to persuade employers to retrench only as a last resort.

Besides the weak economy, two factors could weigh on the job market in the coming months.

One is the fact that retrenchments tend to lag periods of unusually low economic activity, which suggests that much of the impact of the circuit breaker on companies during the second quarter will show up in the job market only in the second half of the year.

The other is that for most companies, the wage subsidies under the Jobs Support Scheme - which have probably prevented thousands of retrenchments - will expire this month.

The jobs situation report cautions that "softness in the labour market is likely to persist with continued weakness in hiring and pressure on companies to retrench", notes the writer, adding that the unemployment rate, which climbed to 2.9 per cent i
The jobs situation report cautions that "softness in the labour market is likely to persist with continued weakness in hiring and pressure on companies to retrench", notes the writer, adding that the unemployment rate, which climbed to 2.9 per cent in the second quarter, will likely rise further. ST PHOTO: ONG WEE JIN

Barring a reimposition of the circuit breaker... the economy should start to rebound in the second half of the year, as some pent-up demand reappears.

But a rebound from a low base should not be confused with a recovery - the economy is still going to end up with negative growth this year - minus 7 per cent to minus 5 per cent, according to the revised forecast.

The data suggests that there will be challenges to overcome. More than 70 per cent of the 92,000 committed opportunities are for PMETs.

However, the bulk of the retrenchments are likely to be workers in the hardest-hit service sectors, such as restaurants, retail, transport, tourism, aviation and events. A high proportion of these are likely to be non-PMETs. 

The Government has in place several initiatives to deal with retrenchments.

The centrepiece is the SGUnited Jobs and Skills Package, under which the Government plans to create around 100,000 new positions, including jobs, traineeships and apprenticeships.

By the end of last month, the National Jobs Council - which had its first meeting only in June - had already curated about 92,000 opportunities committed by both the public and private sectors - a commendable achievement in such a short time, given the circumstances. About 24,000 job seekers have already been placed.

But the data suggests that there will be challenges to overcome.

One is the fact that more than 70 per cent of the 92,000 committed opportunities - both in the public and private sectors - are for PMETs. However, the bulk of the retrenchments are likely to be workers in the hardest-hit service sectors, such as restaurants, retail, transport, tourism, aviation and events. A high proportion of these are likely to be non-PMETs. So, looking ahead, there will be a need for more non-PMET positions.

While most of the 24,000 job placements so far have indeed gone to non-PMETs, about 60 per cent of these are for short-term jobs (of up to 12 months).

This is because, as the jobs report pointed out, in the initial phase, the focus was on placing job seekers to handle the surge in Covid-19-related issues. But that phase will pass.

While it is encouraging that some new jobs for non-PMETs are emerging in areas such as warehouse logistics, hospitality and delivery services, more will need to be done for this group in particular.

Another challenge relates to job matching. Manpower Minister Josephine Teo alluded to this when she pointed out that in the manufacturing sector, some companies in electronics and precision engineering are still hiring. However, most of the layoffs have been concentrated in the service sector.

Mrs Teo acknowledged that there could be mismatches in demand and supply, noting that some job seekers "may not have thought about such jobs/industries that they are not familiar with or feel that the level is not quite what they are looking for". She urged job seekers to consider such new opportunities.

This is pragmatic advice, but it would need both job seekers and companies to step out of their comfort zones: Job seekers would have to adjust their expectations and prepare for career shifts, while companies would need to change their traditional hiring practices, step up training - for which subsidies may be available - and redesign jobs.

But even if job seekers and companies, drawing on all available help, make these difficult adjustments, there is still a good chance that thousands of workers will end up involuntarily unemployed, perhaps for prolonged periods, depending on how the pandemic pans out.

The Government has indicated that it is prepared to do more and has the means. Cushioning the blow to the unemployed who cannot find jobs despite everyone's best efforts should be one of the priorities going forward.