Wage-cost pressures are affecting the profit margins of Singapore businesses and sparking worries about a possible recession in the city-state’s economy.
At roughly 43 percent of gross domestic product, wage costs in Singapore are at levels which historically had preceded recessions in 1985, 1997 and 2001, Reuters reported, citing analysts.
The wage pressures have led to a spike in business closures.
Almost 42,000 businesses ceased in the first half of this year, compared with nearly 49,000 in the whole of 2015, according to the report.
Total nominal wages rose 4.6 percent per year on average in Singapore over the past decade, compared with a 0.5 percent average annual growth rate of value-added per worker in that period.
Recent data showed the unit labor cost index hitting a record high of 116.7 in the second quarter.
Small and medium-sized enterprises are particularly taking a hit due to the rise in wage-costs.
“We’ve started hearing of decisions to call it a day,” Kurt Wee, President of the Association of Small & Medium Enterprises, was quoted as saying.
Trinh Nguyen, Natixis’ senior emerging Asia economist, says the spike in the labor cost index has increased the 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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