A COMBINATION of strict foreign worker policies and slow growth could force companies to start shedding workers and downsize next year, warned economists.
This in turn could lead to a weakening of the job market and slower job growth, which is in sharp contrast to this year.
Even though growth has been slow this year, with full-year growth expected to be about 1.5 per cent, the job market has held up well.
Unemployment is at a near-record low of 1.9 per cent while the economy is estimated to have created 100,000 jobs for the whole year.
But this could change next year as companies, which have been holding onto workers and business deals, start to "throw in the towel", given the high labour costs, said Credit Suisse economist Michael Wan.
He believes that employment growth will start to slow next year, as the economy continues to grow at a tepid pace of about 2 per cent.
"We think employment growth will start to moderate in 2013, given that companies are probably hoarding labour in anticipation of more foreign worker curbs," he said.
"We expect the less productive companies to start to throw in the towel as restructuring bites."
DBS economist Irvin Seah agreed, saying that foreign worker curbs are already making companies close down operations or move out, as many of the small and medium-sized enterprises (SMEs) are struggling to keep up with costs.
"But the reality will hit home harder next year, when growth continues to be weak," he added.
Levy increases began in 2010 and were raised in last year's Budget.
Companies will pay between $250 and $750 more in levies per worker by the time all the changes are implemented next July, depending on the sector they are in and how reliant they are on foreigners.