Singapore's high-wages bring recession warnings

by Lucy Hook24 Aug 2016

The pressure of the cost of high wages on businesses is flashing warnings of a recession in Singapore, according to analysts.

While the Republic's economy is expected to grow between 1-2% for 2016, analysts say wage costs in Singapore are now at similar levels to those which preceded recessions in 1985, 1997 and 2001, a Reuters report said.

Whilst Singapore's wage-costs account for 43% of gross domestic product - less than the 55% world average - higher wages are raising business costs.

This comes at a time when the export-orientated economy has suffered hits from a slowdown in China, less domestic consumption, and a downturn in commodities and global uncertainty post-Brexit, the report said.

In Singapore, which is often cited as one of the top five most expensive cities in the world, total nominal wages rose 4.6% per year on average over the past decade, compared with a 0.5% average annual growth rate of value-added per worker in that period, Reuters said.

Government data shows that businesses are being hit hard - Almost 42,000 businesses ceased in the first half of 2016, compared to nearly 49,000 in the whole of 2015.

And recent data showed the unit labor cost index hitting a record high of 116.7 in the second quarter.

Trinh Nguyen, Natixis' senior emerging Asia economist old Reuters that this increases recession risks: "It squeezes firms' profit margins and erodes exporters' ability to compete," Nguyen said. "While they cannot earn more money externally ... they cannot reduce cost structures."

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