Singapore’s economy is growing — why aren’t all workers feeling it?
If economic gains continue to be felt unevenly across different sectors, it could lead to a “dual economy” that may lead to more durable wealth inequality, say experts.
The food and beverage sector in Singapore faces high rental and labour costs. (Photo: iStock)
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SINGAPORE: On the surface, the economic outlook for Singapore is rosy.
Gross domestic product growth is expected to be between 4.5 and 5.5 per cent this year, and non-oil exports have been rising rapidly.
Yet, underneath the headline growth figures are early signs that Singapore’s industries are growing at different speeds, with those related to artificial intelligence and technology leading the way and domestic sectors faring less well.
CNA previously reported that Singapore’s move to upgrade its economic forecast for 2026 signals confidence in the growth of AI-related sectors. This includes electronics manufacturing, as well as adjacent sectors in precision engineering, wholesale trade and finance.
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For the weak spots in the economy, which are generally all other sectors unrelated to the global AI boom, geopolitical risks and dampened consumer sentiments amid inflationary pressures still weigh on business activity and growth prospects.
All these are signs that economic growth in Singapore has been uneven, with some element of “K-shaped growth” emerging, experts said.
K-shaped growth refers to a situation where different parts of the economy grow at different rates or even move in opposite directions.
“Headline growth has been strong, but it is quite uneven underneath,” said Mr Brian Lee, an economist at Maybank Securities Singapore.
The weaker sectors are mainly the domestic and consumer-facing parts of the economy, he said.
Retail and the food and beverage sector face high rental and labour costs, and consumers are still fairly careful with spending, he added.
Additionally, Singaporeans are spending more overseas, with the strong Singapore dollar making travel and shopping in the region relatively attractive, said Mr Lee.
To Mr Khoon Goh, head of Asia research at ANZ, a K-shaped growth is most evident in what Singapore’s factories are producing and selling abroad.
“This is most pronounced in Singapore’s non-oil domestic exports, where electronic export growth has surged but non-electronic products have not,” said Mr Goh.
In July, electronic non-oil domestic exports surged 112 per cent from a year ago, while non-electronics exports decreased by 2.3 per cent.
Mr Goh added that almost 60 per cent of the growth in the first half of the year came from manufacturing and logistics, while the food and beverage sector contracted by 0.7 per cent and retail trade and non-professional services industries saw more modest growth performance.
WHY GROWTH IS FELT UNEVENLY ON THE GROUND
In that light, economists pointed out that the strongest-performing sectors in recent quarters are not labour intensive, while the weaker sectors are.
Mr Goh said retail, hospitality and non-financial services make up 24 per cent of the economy, but employ around half of the workforce.
“Hence, the feeling on the ground that the strong headline GDP growth is not benefitting workers, especially with disruptions to the labour market caused by AI which is forcing businesses to restructure to stay relevant,” he said.
For now, Mr Lee said the overall labour market remains relatively resilient, so he remains watchful rather than overly concerned about the weaker sectors.
“The divergence becomes more of a concern if weakness in consumer facing sectors starts feeding into employment and wages, because these sectors are more labour intensive than some of the industries driving GDP growth,” he said.
Standard Chartered economists Edward Lee and Jonathan Koh said they would be cautious about applying the “broad label” of K-shaped growth on Singapore, instead describing it as “strong but relatively narrow and uneven”.
They also said households experience economic conditions mainly through job security, wages and purchasing power – rather than the aggregate GDP number, pointing to a distinction between output growth and employment growth.
“Strong trade-related GDP growth has yet to generate commensurate employment gains, suggesting that the external-sector upturn has so far been relatively job-light,” they said.
WILL A RISING AI TIDE LIFT ALL BOATS?
If left unchecked, uneven economic growth could lead to a “dual economy”, said Dr Tan Ern Ser, adjunct principal research fellow at the Institute of Policy Studies.
That means the economy would be split into two segments, one comprising knowledge workers who benefit from technological advancement and rising productivity, and one comprising low-skilled workers who face weaker wage growth and the threat of displacement.
“The two segments are separated by a gap, with low opportunities for movement from the disadvantaged to the advantaged segment,” he said.
Over time, income differences can lead to wealth inequality, especially if the segment aided by AI continues to flourish while the other segment experiences low wages or job loss.
Individuals and organisations with more resources are generally better placed to experiment with AI and translate it into productivity, influence and income, said Dr Jun Yu, an assistant professor with NUS’ department of communications and new media.
“Those with fewer resources may instead experience the transition largely as something imposed upon them, with less opportunity to shape its effects on their work,” he said, adding that divergence in economic gains across sectors could contribute to more durable wealth inequality.
However, Dr Yu said he would be cautious about framing the issue as a straightforward divide between people who are involved in work related to AI versus those who are not.
“The more consequential divide may be between those who can shape and benefit from AI and those whose work is reorganised by it without comparable power or reward,” he said.
For example, a non-technical worker may use AI to enhance their expertise and career prospects, while a worker in an AI-related company may still face job insecurity or not be paid well.
TACKLING INEQUALITY
To this, skills training could help to mitigate the effects of uneven economic growth, but its benefits will be limited if workers do not have time and organisational support to apply what they learn, said Dr Yu.
A broader response would address whether less-resourced firms and sectors have access to support, whether workers are involved in decisions about implementation and how productivity gains are distributed.
“Policy should ask whether these gains actually ‘translate’ into better wages and job quality, and whether the transition expands or restricts opportunities for social and occupational mobility,” he said.
Singapore has taken the step to democratise access to AI tools through schools, noted Professor of Sociology Paulin Straughan of Singapore Management University.
She compared it with mobile phones, which were initially accessible only to those who could afford it, but has since become a “basic necessity”.
She also said normalising philanthropy could help to reduce the effects of inequality, pointing to pioneers in Singapore who used some of their fortune to build hospitals and gave back to society in different ways.
In that way, the population can see how having wealthy members of society can benefit others.
A K-shaped economy represents a fragmentation that may potentially lead to collapse, she said.
“But if there are systematic transfers, where those who make it continue, in their different pathways, to channel some of their excess to try to weave a supportive safety net so that no one falls too far, then that society’s stability will be protected and enhanced,” said Prof Straughan.
Source: CNA/an(nj)
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