[SINGAPORE] Singapore's low productivity levels are the result of low economic growth and also due to short-term business cycle fluctuations, according to a research report.

The Institute of Chartered Accountants in England and Wales (ICAEW) also said that long-term productivity growth may be achieved by focusing on expanding the finance and infocomm technology (ICT) sectors.

Singapore's output per hour worked declined 3.5 per cent year-on-year in the fourth quarter of 2012 across the three main sectors of construction, manufacturing and services. This does not mean that Singapore has lost its edge and is doomed to gradual decline, according to the report.

"Given the long-term nature of the productivity concept, such an interpretation would be premature," the report titled "Economic Insight: South East Asia" said. It cautions that the statistics can be volatile in the short term and that the downturn could reflect the business cycle rather than fundamental overall changes.

"Productivity will determine Singapore's prosperity in future years, but it's best looked at as an outcome of the economy's structural transformation than a determinant itself."

Since rebounding from the global financial crisis in 2009, labour productivity in Singapore has been in negative territory since the fourth quarter of 2011. The report, commissioned by ICAEW and produced by the Centre for Economics and Business Research (CEBR), stated that the fall in labour productivity is sharpest in the manufacturing sector, which had exceedingly high annual labour productivity growth rates in 2010.

"However, this was a fundamentally cyclical event as output had plunged during the financial crisis and the subsequent recovery boosted output per worker."

In construction, the pattern is less clear, but rates of negative 3.5 per cent growth in the last quarter of 2012 are well below the series average of 2 per cent overall. Services have also seen an erosion of labour productivity and for the economy as a whole, output per hour worked was down 3.5 per cent year-on-year in the fourth quarter of 2012.

ICAEW economic adviser and CEBR head of macroeconomics Charles Davis, said: "Singapore's long- term prosperity depends on raising productivity levels and raising real wages right across the population. However, this slowdown should not be seen dooming Singapore to decline; productivity levels should be seen as a outcome, not a determinant. For example, the sharp fall in manufacturing was down to the financial crisis and the subsequent recovery boosted the figures."

If Singapore manages to grow high value-added sectors, then its overall productivity will rise. The report explained that the latest productivity figures offer a positive indication of this as the biggest improvement in the last quarter of 2012 came in the finance and ICT sectors.

"If Singapore grows its high-value productive sectors - such as finance and ICT - overall productivity will increase . . .However, it will be important to focus on structural change to raise productivity. Singapore will need to adjust as it moves away from over-dependence on cheap foreign labour," said Mr Davis.

He also said at a briefing in Singapore yesterday that Singaporeans may earn higher wages than many of their international counterparts but they work extremely long hours even though they produce less than in most other high-income countries.

At current birth rates, productivity increases are necessary to maintain output and raise living standards. Mr Davis added that although limits on immigration are understandable in a country such as Singapore, from an economic perspective, it remains important to attract foreigners with key skills.

ICAEW undertakes a quarterly review of South-east Asian economies, with a focus on the five largest countries; Indonesia, Malaysia, the Philippines, Singapore and Thailand and provides its 140,000 members with a current snapshot of the region's economic performance.