SINGAPORE — The Republic’s total workforce — comprising citizens, permanent residents and foreigners — is expected to grow at a slower pace over the next two decades. From an average of 3.3 per cent growth per year between 1970 and 2010, the size of the workforce will increase by an average of just between 1 and 2 per cent per year between 2010 and 2020.

“At current birth and immigration rates, there will soon be fewer Singaporeans joining the workforce and more retiring from it. The citizen workforce will age,” the White Paper released yesterday said.

Noting that Singapore cannot allow in “unlimited numbers of foreign workers”, it added that beyond 2020, workforce growth will slow down further to about 1 per cent per year “as the population ages and the Singaporean workforce starts to plateau”.

The impact? Economic expansion will slow to low single digits — and only if productivity continues to grow.

The White Paper said the Republic’s gross domestic product is expected to grow by 3 to 5 per cent in this decade, if it can achieve the “ambitious stretch target” of 2 to 3 per cent productivity growth per year.

From 2020 to 2030, GDP is expected to expand at a modest 2 to 3 per cent, with productivity growth moderating to 1 to 2 per cent in tandem with demographic shifts.

Despite the slowing workforce growth, CIMB economist Song Seng Wun is hopeful that Singapore remains attractive to investors.

“In the long term, Singapore’s attractiveness lies in its fundamentals in terms of governance and competence. That is why we still have substantial investment commitments coming from some of the biggest global companies,” he said.

“Unless a company is labour-intensive, the workforce considerations should not discourage businesses to use Singapore as a launch pad for growth and expansion.”

UOB economist Francis Tan said that low- to mid-single digit economic growth is admirable for a developed economy such as Singapore.

But as the Government said, the key for that to happen is to ensure consistent productivity improvements, a goal which companies will need to work very hard to achieve, he said. “This can be done by increasing total factor productivity, more business process innovation to compensate for the reduced workforce growth rate, or by increasing investment in capital goods that can replace labour to a certain degree. However, none of these can be done overnight.”

But the adjustments are necessary, and companies that do not adapt will find it increasingly difficult to compete in Singapore’s high-cost environment, said Credit Suisse analyst Michael Wan. “I think we will see some less productive companies start to get weeded out in 2013 as restructuring bites.”

Agreeing, Mr Tan expects low value-added manufacturing clusters to be hollowed out going forward. “This is particularly true as older workers leave the workforce and lower value-added manufacturing companies are not able to find cheap labour. Young graduates will not want to work in such firms.”

The White Paper said that actual economic growth will depend on many factors, including the external environment, productivity and workforce growth, “how dynamic and creative Singaporeans are, and how well we work together, compared to people in other cities”.

Economists noted that difficulties in improving productivity will remain a downside risk to economic growth. Compared to the 2 to 3 per cent target, a 1 to 2 per-cent productivity growth target is more likely, said Mr Wan, reflecting a similar statement made by the Singapore Business Federation earlier this month.

“On this basis, we are looking for GDP to average around 2 to 4 per cent over the rest of this decade, given a lower labour force growth of 1 to 2 per cent over the next decades,” said Mr Wan.