- Firms could collude to raise prices as there is inelastic demand for semiconductors, but constant price declines for semiconductors and electronic components is remarkable, suggesting little to no cooperation or collusion

To find out more for report writing:

- Why isn't there colluding or cooperation between the manufacturing  firms

https://www.straitstimes.com/business/for-local-semiconductor-equipment-maker-its-hip-to-make-chips

During the third quarter of 2021, the Singapore economy grew by 7.1% on a year by year basis. On a quarterly and seasonally adjusted basis, the economy had expanded by 1.3% in Q3. A turnaround 

In 2022, GDP growth in the region is expected to have a faster growth as countries progressively resume more economic activities. Aside from this the supply bottlenecks and disruptions might continue to weight down production.

Despite sustained improvements in labour productivity, it is very likely that production will be weighted down by the supply bottlenecks in early 2022.

There are currently 4 main risks in the economy at the moment:

Main current benefit in manufacturing is the growth prospects as it is expected to remain strong given the current robust demand. Manufacturing is also expected to continue to expand with growth in electronics and precision engineering clusters supported by sustained demand for semiconductors and semiconductor equipment respectively. With the healthy demand of IT and Digital solutions it is expected to drive the expansion for Info-comm, finance and insurance.

With these factors our economy is expected to grow 3.0 to 5.0% in 2022

The manufacturing sector grew by 7.2 per cent year-on-year, moderating from the 17.9 per cent growth in the preceding quarter. All clusters within the sector, except for the biomedical manufacturing cluster, expanded during the quarter. In particular, the electronics and precision engineering clusters continued to post healthy growth amidst robust global demand for semiconductors and semiconductor equipment respectively. On a quarter-on-quarter seasonally-adjusted basis, the manufacturing sector shrank marginally by 0.1 per cent, easing from the 2.2 per cent contraction in the second quarter. 

Due to the pandemic, Singapore is still living with many restrictions, resulting in many people staying home and needing electronics for online working or schooling, producing a constant demand for semiconductors and semiconductor equipment. These restrictions allow the manufacturing sector, especially electronics to flourish.

Significance of Manufacturing Sector to Singapore's GDP 

The Manufacturing Sector had a total contribution of 21.5% to 2020’s real GDP. This is very significant considering it has the highest percentage of the sectors and the next sectors with the highest percentage contribution is Wholesale Trade at 16.8% and Finance and Insurance at 15.7%.

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2. Inflation (Pearlyn & Jordon)

General Inflation Situation in Singapore

Singapore saw the highest inflation rate in 8 years during October 2021 (up 3.2%), mainly due to high car prices and higher accommodation costs. The October core inflation rate, which excludes the factors previously mentioned, rose to its highest in 3 years (up1.5%).

Transportation inflation rate rose to 14.3% from 10.8%, and housing costs rose 2.5%.  

The main reasons for the rise in core inflation include higher labour costs due to disruptions in the supply of manpower, mainly due to dormitory lockdowns and limited entry of foreign workers in order to prevent further spread of Covid-19. It is also due to imported inflation resulting from supply chain disruptions worldwide leading to mismatch in geographical demand and supply (for example the shortage of shipping containers in the right places). Higher crude oil prices also resulted in escalating shipping costs. Imported inflation is evident in higher food and consumer goods prices and higher raw material costs that is required for manufacturing. 

Service costs increased to 1.6% in October from 1.2% in September, largely due to the establishment of the Vaccinated Travel Lane (VTL), which inflated the air travel prices as well as hotel accommodation rates. 

Electricity and gas prices saw a decrease in inflation from 9.9% to 7.8% which can be attributed to the minimal increases in tariffs in 2020. 

MAS core inflation rose to 1.1% year-on-year in the third quarter. This is due to a significant increase in the 11 externally-led elements of the CPI (see Graph 3.11). Electricity and gas costs, in particular, rose sharply as global oil prices were above pre-pandemic levels (Q4 2019). At the same time, rising prices for imported foods following the acceleration of global food inflation in the previous quarter led to higher inflation rates for undercooked foods. Domestically, rising labour costs may be reflected in some consumer service prices, capturing domestic inflation factors. 

Inflation rates for CPIAll items rose from 2.3% in the second quarter to 2.5% in the third quarter due to rising core inflation and significant increases in accommodation costs (see Graph 3.12). In addition, rents for all types of apartments continued to grow, pushing housing inflation in the third quarter from 0.9% in the second quarter to 1.7%. Meanwhile, gasoline costs rose as global oil prices rose further in the third quarter, but these were offset by the slowdown in car price growth and car tax cuts introduced in August.

Impact on Relevant Industries

The Domestic Supply Price Index (DSPI) which indicates prices changes in locally manufactured goods and imports that are consumed locally rose 26% in November 2021, as compared to November 2020. 

In particular, the price rates of manufactured goods increased to 14.3%, and that of machinery and transport rose to 12%, as compared to the previous month. This has a significant impact on all industries in Singapore, and the electronics industry is not spared. 

Semiconductor prices have increased significantly in the past one year, due to many global factors. This includes:

Chip Manufacturers in Singapore

The semiconductor industry in Singapore has at least 13 major foundries and its combined production capacity makes up about 11% of the global market share. 

GlobalFoundries, one of the world's largest chip foundries manufactures about 40% of its semiconductors in Singapore alone, and is looking to invest even more into building new production facilities here. This demonstrates Singapore's leading position in the world as a semiconductor manufacturer.

Semiconductor manufacturing is one of the pillars of Singapore's electronic industry. Despite lockdowns, production at these foundries were still ongoing with social distancing measures in place at almost full capacity. 

While there are many negative impacts from inflation, it can, in some instances benefit the profit margins of manufacturers. Companies that have the power to price their products can improve their profit margins in the face of growing demand. 

Generally, semiconductor companies, due to the high barriers of entry, have strong pricing power. The global drastic shortage of chips allow them to increase their prices as well as profit margins. 

In 2020, ASMLs research and development (R&D) investments totalled 2.2 billion Euros which is a significant increase from 1.97 billion Euros in 2019.

Prices of graphic cards have been a sore subject over 2020 due to a tragic mix of hardware shortages and an overwhelming demand leading to massive inflation. China’s recent crackdown on Cryptomining operations resulted in ex-mining GPUs flooding back into the market with consumers anticipating prices of hardware drop to a more affordable level. However, a recent market analysis suggests otherwise.

Reports state that the supply of Nvidia RTX 30 series GPUs is to drop by 30% while the 3060, in particular, suffers from a 50% reduction in expected availability. Moreover, prices are rising for about every GPU on the market even older GPUs from 2 generations ago such as the Nvidia GTX 1050Ti.

Prices are expected to become even more expensive as Taiwan Semiconductor Manufacturing Company(TSMC) may be rising its semiconductor prices. According to Wall Street Journal(WSJ), TSMC is looking to raise prices up to 20% in order to offset the huge spike in demand for chips. Furthermore, while PC players feel the shortage due to the limited availability of GPUs, this global silicon shortage affects everything from the iPad to automotive(Tesla, E-cars etc) manufacturing.

In the chart below, we can see that from 2020 Q1 2020 to Q1 2021 the average selling price (ASP) of GPUs of all ranges of products has tremendously inflated. In Q1 2021, the average price of a high-end GPU was US$1,358, almost double the average price in Q1 2020. Low-end, mid-range and workstation GPUs have all seen a spike in their prices as well.

Employment & Unemployment rates

In 2021 Q3, the market saw a much smaller decrease of -2,400 excluding Migrant Domestic Workers (MDW) than the previous quarter, with a significant decline of -16,300. Resident employment increased by 19,100 while non-resident employment fell by -21.500.

As of 15 December 2021, Singapore's resident unemployment rate stands at 3.5% while citizen employment is 3.7%. The long-term resident unemployment rate rose by 1.2% in September 2021 from 0.9% in June 2021. Moreover, Seasonally adjusted unemployment rates declined from July 2021 to August 2021 (Overall unemployment rate: 2.8% to 2.7%).

Increases of resident employment were led by outward-orientated sectors of Information & Communications, Professional Services, Financial Services along with domestically-orientated sectors like Health & Social Services. Though, growth of resident employment in consumer and tourism related sectors continue to trail behind others. The ongoing border restrictions contribute to the increased contraction of non-resident employment across most industries




























Retrenchment
As seen from the graph below (left), we can infer that ever since COVID-19 in 2020 there has been a major spike in retrenched workers [From 10.69 in 2019 to 26.11 in 2020 (in 1,000s)]. On the other graph (middle), it is seen that the number of retrenchments declined in Q3 2021 from 2,340 to 1900 retrenched per 1,000 employees. Furthermore, the six-month re-entry among retrenched residents improved in Q3 2021 from 64% to 66%, back to the rate seen in Q1 2021.

Notably, additional data shows that fewer employees were placed on short work-week or temporary layoffs in 3Q 2021 (4,060) compared to 2Q 2021 (5,580), with numbers even maintaining above pre-pandemic levels. More particularly, there was a significant decrease in retrenchment in the Air Transport & Supporting Services because firms ramped up capacity in anticipation of resumption in air travel.


























Labour Turnover

From 2Q 2021 to 3Q 2021, there was a continued recruitment rate increase from 1.9% to 2% (Seasonally adjusted), while resignation rates remained steady at 1.6% throughout Q1 to Q3 in 2021. Both rates were slightly under pre-COVID levels.

Turnover trends were mixed for occupations and industries. PMETs assembled a larger share of their workforces, such as Financial Services, Professional Services and Health & Social Services, which observed an increase in both resignation and recruitment rates. On the other hand, there was a decline in different sectors, e.g. Retail Trade, F&B Services.

The PMETs saw an upsurge in both recruitment and resignation rates, Echoing the industry trends. Moreover, the rates were more elevated than the quarterly average of pre-COVID periods. Thanks to the heightened movement of PMETs between employment has signalled improving confidence in the labour market. On the contrary, In 2Q 2021, non-PMETs observed lower recruitment and resignation rates.

Labour Turnover for Manufacturing Sector C26

A more in-depth analysis shows that the turnover rate for Electronic, Computer & Optical Products (C26) for the average monthly recruitment rate by industry and occupational group rose from 0.9% (2020) to 1.9% (2021).

Adding on, the turnover rate for the average monthly resignation for C26 from Q2 2020 to Q3 2021 increased from 1.3% to 1.8%, respectively.

Lastly, if we break down the average monthly recruitment rate and resignation rate, we can see that (All in C26 only):

1. Professionals, Managers, Executives & Technicians have a recruitment rate of 1.6% and a resignation rate of 1.5%.

2. Clerical, Sales & Service Workers have a recruitment rate of 2.1% and a resignation rate of 1.1%.

3. Production & Transport Operators, Cleaners & Labourers have a recruitment rate of 2.4% and a resignation rate of 2.3%.

Total Annual Employment change for the year 2019 was 69.7, while in 2020 when the pandemic hit, it dropped to an all-time low of -181 which is the lowest it has been in 10 years. Zooming into the data, the Annual Employment Change for the manufacturing sector (foreign and local combined) dropped drastically from -2.1% (2019) to -37.8% (2020).

























Job Vacancy Overview and for Manufacturing sector C26

 In September 2021, the number of job vacancies (seasonally adjusted) trended higher to 98,700 while businesses continued to reconstruct their workforces amid inflating demand. 

Along with the plunge in unemployed individuals, the ratio of job vacancies to unemployed persons rose, from 163 job openings per 100 unemployed persons in June 2021 to 201 in September 2021 (Seasonally adjusted).

Due to the ongoing border restrictions, there were manpower shortages in the Manufacturing and Construction sectors. Moreover, since the incremental ease of travel and dining regulations, there has been an emerging demand from the F&B Services, Air Transport & Supporting Services and Retail and Trade sectors.

The manufacturing sector has also seen a substantial decrease in Work Permit Holders and other sectors such as Construction, F&B Services and administrative and support services, accounting for 38% of all job vacancies.

The table on the right indicates that the Job Vacancy rate grew drastically from 1.6% in September 2020 to 5.3% in September 2021. Furthermore, the table also displays the different Job Vacancy rates by industry and occupation as follows:

Improving Employment in C26 of Manufacturing Sector (In 1,000s)

According to the latest data, Manufacturing Sector C26 underwent a declining rate of -0.6 in Q3 of 2021. However, from Q1 2021 to Q3 2021, we can see a substantial advancement from -2.8 to -0.6, meaning that fewer employees are getting retrenched, and the number of hired workers are gradually rising.

Notably, from Q4 2020 to Q1 2021, the employment rate worsened from -1.6 to -1.8 but then rose again to -1.6 in 2Q 2021. In Addition, the Total Employment Level in Q3 2021 for Manufacturing Sector C26 was 78.9.











Conclusion for Employment

The labour market situation in the Manufacturing industry has taken a brutal hit from the pandemic, as seen from the very low Annual Employment Change of -37.8%. Moreover, when we zoom into Sector C26, it is regarded that Job Vacancies dropped despite the pandemic in Q3 2020 (1.6%) but drastically rose in Q3 2021 (5.3%).

However, the labour turnover rates show that the average monthly recruitment rate in Q3 2021 (1.9%) is higher than the average monthly resignation in Q3 2021 (1.8%). Furthermore, different occupations in Sector C26 also show that the recruitment rate is generally higher than the resignation rate. 

In addition, retrenchments have declined drastically from the start of the pandemic, as seen from 3Q 2020, where it was 9,120 to 1,900 in 3Q 2021.

Trade and Industry Minister Chan Chun Sing also stated that they aim to grow the manufacturing sector by 50% over the next 10 years. In the report, Mr Chan noted that the manufacturing industry should pave a pathway towards a goal where there can be a qualitative transformation of the sector into advanced manufacturing, making up a more significant market share.

Despite the pandemic, Singapore's government has played a prominent role in helping its citizens become employed once again. For example, packages under the SGUnited Jobs and Skills have supported hiring nearly 400,000+ locals by 58,000 businesses from September 2020 to May 2021. What's more, is that the Jobs Growth Incentive has been extended to March 2022.

Furthermore, employers can tap into Career Conversion Programmes to train and hire mid-career workers for new job roles with impressive long-term aspects with available support up to 90% of salary and training expenses.