SINGAPORE BATTLES RISING UNEMPLOYMENT

UNCLAS SECTION 01 OF 02 SINGAPORE 000112

STATE PASS USTR
NEW DELHI FOR EHRENDREICH

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON ELAB SN

SUBJECT: SINGAPORE BATTLES RISING UNEMPLOYMENT

REF: SINGAPORE 80


1. (SBU) Summary: The global financial crisis is beginning to be
reflected in a rise in unemployment in Singapore which will likely
get worse as the recession continues. Recent business surveys have
been downbeat with employers expecting more layoffs and a long wait
before conditions improve. The GOS is working with unions and
companies to maintain as many workers on the payrolls as possible,
subsidizing training and wages to avoid layoffs. Government
programs to help Singapore workers are not necessarily aimed at
reducing the number of foreigners who make up a large percentage of
the labor force, but one report nevertheless sees a departure of
approximately 200,000 foreigners from Singapore over the next two
years. End Summary.


2. (U) Singapore's Ministry of Manpower released statistics January
30 showing a sharp slowdown in job growth and a rise in the
unemployment rate in the fourth quarter of 2008. The overall
seasonally adjusted unemployment rate rose from 2.2 to 2.6 percent
in December over the previous quarter, and the resident unemployment
rate (which only includes foreigners who are permanent residents)
rose from 3.3 to 3.7 percent. Despite recent layoffs, net job
creation was still positive with 26,900 new jobs added in the fourth
quarter, led by construction and services. However, the net gains
were well off previous quarterly increases in jobs. Manufacturing
is bearing the brunt of the recession with 6200 fewer jobs in the
fourth quarter, the sharpest quarterly decline since 2003.
Approximately 73,100 Singapore residents were unemployed in
December.


3. (SBU) Local analysts said the rise in unemployment was less than
expected but cautioned that the labor market down cycle was just
beginning and that net job creation would likely soon turn negative.
Citigroup is forecasting a 4.2 percent overall unemployment rate
for 2009, but with a peak of 5.0 percent sometime in the second half
of the year. Net job losses will likely exceed losses during
recession years in 2001 and 1998. The GOS hopes to keep layoffs
below 1998 losses of 30,000 jobs, but Citigroup anticipates 34,000
net job losses for 2009. Recovery in the job market may come later
than recovery in GDP growth as the economy clears the excess labor
supply built up during the recent boom years.


4. (SBU) Business sentiment for 2009 is downbeat. Singapore's
Business Expectations Survey found that 53 percent of firms in the
services sector expected business conditions to deteriorate during
the first six months of the year. The hotel industry led the gloom
with 100 percent of respondents in the industry expecting a decline.
An Economic Development Board survey of manufacturers released
January 30 was even more pessimistic with 63 percent of firms
anticipating a deterioration. Only six percent expected an
improvement. 70 percent of manufacturers expected to keep
employment stable, while 29 percent expected a reduction in head
count during the first quarter. Electronics and precision
engineering firms expected to be hit the hardest as the sharp
slowdown in global demand compounds a structural relocation of the
industry to lower cost countries that was already underway. An
American Chamber of Commerce survey in December found that 17
percent of respondents had reduced staff in the fourth quarter of
2008 and 15 percent had repatriated some of their expat staff
because of the recession. One-third of respondents said they did
not expect a turnaround in business until after 2009.

The Exodus
--------------


5. (SBU) A recent Credit Suisse report predicted that the ongoing
recession would result in the departure of approximately 200,000
foreigners from Singapore over the next two years. Non-Singaporean
citizens make up approximately 1.7 million of the 4.8 million
population and more than 40 percent of the labor force. Foreign
employment was up in 2008 due to strong demand in the early part of
the year but employment growth slowed significantly in the fourth
quarter. The bank estimated that 16 percent of foreigners working
in services and 19 percent in manufacturing would lose their jobs,
and concluded that most would depart the country. Employment pass
holders who lose their position are allowed to stay in the country
for a week to six months, depending on the type of pass, unless they
can find alternate employment. Long lines have formed at the
Immigration and Checkpoints Authority offices for foreigners
applying for residency status to avoid repatriation if their job is
axed. Credit Suisse said the contraction in population would
generate drops in private consumption and property prices that could
result in a second round of negative shocks on the economy.


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6. (SBU) Local movers say an exodus of expatriates has not yet
begun, but have seen signs one may soon begin. Bill Cain of Santa
Fe Relocations told Econoff that business had been quiet in the past
few months, but the company has seen a large spike in requests for
moving surveys over the next couple months. Cain believes that at
the end of the school year movers will be busy sending white-collar
expatriates back to their home countries or elsewhere in the region.
Gordon Bell of Asian Tigers said incoming moves to Singapore were
down 15 percent, but nevertheless he continued to see expats moving
to Singapore as companies like Rolls Royce and Abbott Labs begin
production in new factories that were planned before the recession
hit.

Saving Jobs the Singapore Way
--------------


7. (SBU) The GOS is tackling the unemployment problem by devising
programs and working with companies to discourage layoffs and pursue
other alternatives to save costs, Mr. Ong Yen Her, Director of the
Ministry of Manpower, told Econoff February 5. Working with unions
and employers in a "tripartite" process, the Ministry is advising
companies to reconsider layoffs and instead redeploy workers to
alternative areas of work, implement shorter work weeks and flexible
work schedules, or send temporarily surplus workers to training.
The recent budget (see reftel) includes new programs to subsidize
the cost of keeping workers on the payroll. The Skills Program for
Upgrading and Resilience (SPUR) subsidizes up to 90 percent of the
cost of training courses for workers. 170 companies have so far
sent a total of nearly 10,000 workers in the past two months into
approved training courses. The new Jobs Credit scheme is a cash
grant to companies equivalent to 12 percent of employees' wages,
capped at the first S$2500 (US$1660). The scheme covers wages only
for Singaporean citizens and permanent residents who pay into the
Central Provident Fund, a compulsory savings program. Although
there has been some debate in Singapore about whether to narrow
programs to assist Singapore citizens only, Mr. Ong said the
government was taking pains to avoid an anti-foreign bias.


8. (U) The National Wage Council (NWC) issued guidelines January 16
advising companies hit by the economic crisis to freeze or cut wages
to reduce costs. Although the guidelines are not compulsory, the
private sector often uses them to guide wage decisions. Many
Singaporean companies have flexible wage systems including variable
bonuses, regular annual wage increments and a monthly variable
component that can be quickly adjusted downward during slow economic
times and raised in boom years. The NWC is encouraging senior staff
to take deeper pay cuts than junior staff and line workers.
Singapore's Ministers and senior civil servants are seeing their own
pay cut by 19 percent as portions of their salary linked to economic
performance are adjusted downwards in light of the recession.
SHIELDS