Exports, manufacturing up but retrenchments continue - what gives?

Some segments of the economy are finally beginning to look brighter this year but it seems the labour market has yet to receive the memo.

After a protracted period of declining growth, Singapore manufacturers finally appear to have reached the end of the tunnel. Manufacturing output grew at the fastest rate in five years in December, according to Economic Development Board data out on Thursday (Jan 26).

The data showed factory output surged 21.3 per cent in December over the same month a year ago, double economists' expectations of 10.4 per cent growth and the strongest showing since December 2011.

This momentum is expected to continue amid a firmer global outlook, and the data has prompted some economists to pencil in more optimistic forecasts for the Singapore economy this year.

The manufacturing numbers reinforced upbeat export data out last week (Jan 17) - non-oil domestic exports expanded 9.4 per cent in December over the same month a year earlier, following a strong 11.5 per cent reading in November. It surprised economists who had expected a more modest uptick.

 
 

This seems to stand in stark contrast to the mood in the labour market, however.

The annual average unemployment rate for Singaporeans and permanent residents last year -while still low - rose to its highest level since 2010, and the number of layoffs hit a seven-year high, according to the Manpower Ministry's latest preliminary data also released on Thursday.

The total workforce grew by just 16,400, including domestic workers, making this the slowest rate of employment growth since 2003 at just 0.4 per cent.

Meanwhile, 19,000 people were retrenched or had their contracts aborted, the highest number since the global financial crisis in 2009. Retrenchments alone hit 16,600.

The data appear to present a confusing picture of the Singapore economy - so are things looking up, or not?

Citi economist Kit Wei Zheng said stronger manufacturing numbers can be attributed largely to a pick-up in exports - the sector, which makes up a fifth of Singapore's economy, exports about two-thirds of its output.

Global economic outlook appears to be stabilising, and growth in major economies like the United States is gaining pace, which is good news for exporters in Singapore and their counterparts aross Asia.

However, this turnaround is still in its infancy. If this trend in manufacturing holds up, it could potentially help lift the rest of the economy including service sectors like transportation and storage and financial services.

For now, though, the impact has yet to spill over in a significant way into other industries, which could go some way towards explaining why the labour market is still suffering from a slow-growth hangover.

Different sectors are also being affected differently.

While export-dependent industries might be enjoying a lift, Mr Kit pointed out that domestically-oriented ones (such as retail, construction, food and beverage) are still very much affected by slowing growth and dampened consumer sentiment.

"The export driven uplift to fourth quarter economic growth has yet to provide any meaningful uplift to labour demand and supports our view that domestically oriented sectors may continue to underperform...a dual economy scenario," he said in a research note.