As Singapore turned in slower-than-expected growth numbers yesterday, one economist has voiced fears that the restructuring process is impeding the economy's ability to grow.
Economic restructuring involves the Government tightening the flow of foreign workers and focusing on raising productivity at companies in Singapore.
In a hard-hitting report, Bank of America Merrill Lynch economist Chua Hak Bin said that the restructuring process "seems to be failing".
The veteran economist noted that even as the United States economy seems to be picking up steam, Singapore's is falling further behind.
Advance estimates from the Ministry of Trade and Industry (MTI) showed that the economy grew just 2.1 per cent in the second quarter over the same period last year, down from 4.7 per cent in the previous three months.
The economy shrank 0.8 per cent in quarter-on-quarter terms.
The growth was slower despite a healthier global economy, said Dr Chua, noting that the US is expected to grow faster in the second quarter.
"Growth is being impeded by tight labour constraints even as global demand recovers. We think Singapore is losing its flexibility and ability to capitalise on upswings. A productivity drive is not delivering the improvements sufficiently quick enough to offset restructuring pains," he said, adding that even services growth seems to have been hit by the restructuring.
Productivity grew 2.2 per cent in 2011 but contracted 1.4 per cent in 2012 and again fell 0.2 per cent last year.
In response to a Straits Times query, MTI pointed out that the Government has put in place several schemes to raise productivity.
"However, it will take time for productivity gains to materialise. As such, the Government has adopted a multi-pronged approach to help companies through the transition," said MTI.
It added that it has set out a three-year transition plan to help companies restructure and adjust to the new manpower rules, even as the Government takes a "calibrated approach to the tightening of foreign worker policies to reduce the impact on businesses".
"We remain confident that the economy will be able to restructure successfully over time to be more productivity-driven. This will ensure a more efficient use of labour, which will not just help to relieve labour constraints, but also support higher real wages without eroding the competitiveness of our economy," said MTI.
Other economists said that it is too early to say if economic restructuring has failed.
Global growth has been disappointing and is one factor in Singapore's fluctuating fortunes, noted OCBC economist Selena Ling.
She said the World Bank has downgraded its global growth forecast and the International Monetary Fund is also expected to do so.
"But we expect the turnaround to happen in the second half. Restructuring will take years and it's not a quarterly kind of figure," she said.
Singapore Manufacturing Federation honorary secretary Moh Chong Tau said the pain is to be expected in the restructuring process.
He said manufacturers which have moved out of Singapore so far have been the smaller factories which do testing and assembly, typically low-end value activities.
"But the big semiconductor firms such as Applied Materials are sticking around because they engage in high-value activities," he noted.
This article was first published on July 15, 2014. Get a copy of The Straits Times or go to straitstimes.com for more stories.