Data released by Singapore's Ministry of Trade and Industry (MTI) on Friday (February 14) showed that the cost per unit of output in the manufacturing sector rose slightly for the full year of 2024, but the cost per unit of output in the services sector rose more sharply in the first three quarters of the year.

The economy's unit labor cost (ULC), calculated as total labor costs per unit of labor productivity, is expected to continue rising in 2025. Slower wage growth is likely to be offset by slower productivity growth.

The manufacturing unit business cost (UBC) index rose by 0.2% last year, lower than the 5.8% increase in 2023. The "other" cost component saw the largest increase, contributing 1.2 percentage points to the rise. This includes professional fees, advertising expenses, commissions, and agency fees.

This increase offset declines in royalty fees (contributing -0.6 percentage points), manufacturing ULC (-0.2 percentage points), and work permit costs (-0.2 percentage points).

The remaining cost components, such as non-labor production taxes, utilities, and rental costs, had a relatively small impact on manufacturing's UBC, which MTI attributed to their smaller share of overall business costs.

In the first three quarters of 2024, the services sector UBC index rose by 5.8% year-on-year, reversing a 3.9% year-on-year decline in the same period last year.

This was due to increases in non-labor costs (contributing 5.1 percentage points) and ultra-low sulfur diesel (0.8 percentage points), with the rise in non-labor costs partly driven by higher ocean freight rates outweighing lower air freight rates.

Unit Labor Costs Rise

MTI stated that in 2024, the overall economy's ULC rose by 1.2%, as the increase in total labor costs (TLC) per worker (4%) outpaced labor productivity growth (2.7%). In turn, the rise in TLC came from higher compensation per worker.

However, this marked a slowdown from the 6.5% increase in ULC in 2023, as productivity growth accelerated, it added.

By sector, ULC in the services and construction sectors rose in 2024, as the increase in TLC per worker outpaced labor productivity growth in those sectors.

Specifically, food and beverage services, retail trade, and administrative and support services were all affected by a combination of higher TLC per worker and declining labor productivity.

In contrast, manufacturing ULC declined as productivity gains outpaced the increase in TLC per worker.

MTI expects the overall economy's ULC to "continue rising at roughly the same pace as in 2024."

Against the backdrop of rising global economic uncertainties, per-worker wage growth should slow this year. This could be due to employers becoming more cautious and continued easing of tight labor market conditions.

However, the ministry added, "This will be largely offset by slower economic growth in Singapore and expected slower productivity growth."

But Other Costs to Ease

Beyond labor, MTI believes that utilities, fuel, and transportation costs are likely to ease in 2025, in line with the global oil price outlook.

The ministry stated that businesses' utility costs are closely tied to electricity costs, which are influenced by global oil prices. "Oil prices also add to business costs through fuel and transportation costs."

With the Organization of the Petroleum Exporting Countries and some non-member nations gradually phasing out oil production cuts this year, coupled with slowing global demand, global oil prices are expected to decline further this year.

As a result, domestic fuel and transportation costs should correspondingly decrease in 2025.

MTI added, "Similarly, while water prices will rise in phases in 2025, domestic utility costs are expected to decline."