MORE firms are likely to shut down or downsize as foreign manpower curbs continue, said employers and economists.
This is because productivity has not grown fast enough to make up for the labour crunch.
"If you cannot find enough workers to do the jobs, there is no choice but to consolidate," said Bank of America Merrill Lynch economist Chua Hak Bin.
The experts were reacting to new figures from the Manpower Ministry which show that foreign employment has slowed down significantly, inching up 3,800 in the three months to June.
The last time it grew this slowly was back in the third quarter of 2009, during the global financial crisis, when expansion was just 700 in three months.
The experts said the authorities tightened foreign worker hiring policies with the aim of forcing firms to work more efficiently.
But the reverse has happened in some companies.
Singapore Business Federation's chief operating officer Victor Tay said a lack of workers has pushed some firms to focus on day-to-day operations instead of planning ahead to raise productivity.
"There are pockets of firms which have raised productivity through innovation and technology," he added.
"But you need manpower to use this equipment and to drive productivity projects."
Curbs on the renewal of Employment Passes are also curtailing productivity gains, said Mr Victor Mills, chief executive of the Singapore International Chamber of Commerce.
"(These EP holders) are talented, committed and productive employees... All too often, they are rejected," he said.
For things to improve, sectors which are perennially unproductive such as construction must do better, say experts.
"But the effects will not be seen immediately. The construction workers need time to be trained," said Dr Chua.
Mr Tay suggested that the pace of foreign manpower curbs be slowed down to allow firms to recover.
"Policy formulation is like a medicinal prescription," he said.
"We ought to monitor the patient's response, in this case, the companies. Sometimes, after detecting adverse reaction, dosage of medicine should be moderated."