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. SINGAPORE 00000112 002 OF 002 ¶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