Foreign worker levy suspension won’t boost manufacturing growth

Lacklustre external demand is the culprit.

The deferral of foreign worker levies is unlikely to boost manufacturing growth and investment significantly, although the move will help ease manufacturers’ restructuring pain.

According to Bank of America Merrill Lynch,Manufacturing continues to be disproportionately hurt by tight labor market conditions and lackluster external demand.

“Recent Budget 2015 measures to defer the foreign worker levy hikes to 2016-17 will help ease the restructuring pain, but is unlikely to lift manufacturing growth and investment significantly,” BofAML warned.

UOB concurs that manufacturing outlook is going to be lacklustre in the first quarter, particularly due to weakness in Japan and the Eurozone.

“First, the weak economic conditions in both the Eurozone and Japan will weigh on manufacturing exports to these countries. Currency weakness in these two regions will reduce Singapore’s export competitiveness in the global market. Second, the still-low global oil prices could continue to impact the marine & offshore engineering and petrochemicals segments. Third, the tight labour market continues to plague manufacturers as they work around this issue while trying to improve labour productivity so as to reduce labour-intensity,” stated UOB.

However, UOB noted that the deferment of another round of foreign worker levies for another two years will at least provide manufacturing firms some breathing space and manage their bottom-lines while seeking to improve on operational efficiencies and labour productivity.

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