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THE costs of producing one unit of output for Singapore’s manufacturing sector rose marginally in full-year 2024, while it climbed more significantly for services in the first three quarters of the year, data from the Ministry of Trade and Industry (MTI) showed on Friday (Feb 14).

Meanwhile, the economy’s unit labour cost (ULC) – calculated as the total labour cost per unit of labour productivity – is expected to keep rising in 2025. This comes as slower wage growth will likely be offset by moderating productivity growth.

Last year’s 0.2 per cent increase in the unit business cost (UBC) index for manufacturing eased from 2023’s 5.8 per cent. It was led by the “others” cost component, which accounted for 1.2 percentage points of the increase. These included professional fees, advertising, and commission and agency fees.

The rise offset declines in royalty payments (contributing -0.6 percentage point), manufacturing ULC (-0.2 percentage point) and the costs of work given out (-0.2 percentage point).

The remaining cost components – such as non-labour production taxes, utilities and rental costs – had a relatively small impact on the UBC for manufacturing, which MTI noted was partly due to their small shares in overall business costs.

The UBC index for services jumped 5.8 per cent on a yearly basis for the first three quarters of 2024, a turnaround from the 3.9 per cent year-on-year fall recorded in the corresponding year-ago period.

This was driven by increases in both non-labour costs (5.1 percentage point contribution) – which was in turn partly due to higher sea freight rates more than offsetting lower air freights – and ULC (0.8 percentage point).

Rising unit cost of labour

In 2024, ULC for the overall economy was up 1.2 per cent – which came as the rise in total labour cost (TLC) per worker (4 per cent) outstripped the increase in labour productivity (2.7 per cent), MTI said. The increase in TLC was in turn mainly due to higher remuneration per worker.

Still, this marked a moderation from a ULC of 6.5 per cent in 2023, due to the pickup in productivity growth, it added.

Sectorally, ULC of the services producing industries and construction sector both increased in 2024 due to a rise in TLC per worker that outweighed labour productivity growth within the sector.

Specifically, food and beverage services, retail trade and administrative and support services experienced the combined effects of an increase in TLC per worker and a fall in labour productivity. 

In contrast, the manufacturing sector’s ULC fell as labour productivity gains more than offset an increase in TLC per worker.

MTI expects the overall economy ULC to “continue to rise at a pace that is broadly similar to that in 2024”.

Amid rising global economic uncertainty, wage growth per worker should slow over the course of the year. This is likely as employers turn more cautious and labour market tightness continues to ease.

However, the ministry added: “This will be broadly offset by an expected moderation in productivity growth in tandem with a slower pace of growth in the Singapore economy.”

But other costs ease

Beyond labour, MTI believes that the costs of utilities, fuel and transportation are likely to moderate in 2025, in line with the outlook for global oil prices.

Firms’ utilities costs are closely linked to electricity costs, which are in turn influenced by global oil prices, the ministry said. “Oil prices also contribute to business costs through fuel and transportation costs.”

With the Organization of the Petroleum Exporting Countries and selected non-member countries gradually unwinding their oil production cuts over the course of the year, and moderating global demand, global oil prices are projected to ease further this year.

Domestic fuel and transportation costs should thus moderate correspondingly in 2025.

MTI added: “Similarly, the domestic cost of utilities is expected to ease, notwithstanding the phased increase in water price in 2025.”