Singapore's unemployment rate may rise to about 5 percent as the economy develops, Lee said Saturday. The jobless rate in other developed nations, like the United States and Australia, is around that level "even in good years," Lee said in a prepared speech sent by e-mail. "This could happen to us too, as we develop further," he said.

Maxtor, the world's second-largest maker of computer-disk drives, said Friday that it would close a factory in Singapore and eliminate 5500 jobs as it shifts some production to China. In Singapore, which has suffered three recessions in the last seven years, unemployment has risen as Maxtor, Seagate Technology and Western Digital, the world's three-biggest disk-drive makers, move operations out of the country.

"This is a continuation of the long-term exodus of disk-drive manufacturing to lower-cost locations," said David Cohen, the Singapore-based director of Asian economic forecasting at Action Economics. "Although this would be a bump in the road, this would be a temporary setback for the economy."

Economic growth in the city-state is now coming from industries including pharmaceuticals and services, Cohen said. Singapore is using tax breaks and other incentives to attract drug makers like Pfizer and GlaxoSmithKline.

The government expects economic expansion to slow to between 3 percent and 5 percent this year, as global demand for cellphones and computer chips slumps. The economy grew 8.4 percent in 2004, the fastest in four years.

"Singapore is in a new phase of economic development," Lee said at a labor forum. "Competition is tougher, technology is advancing rapidly, low-value-added activities are dying out and new businesses are being launched. New jobs are being created, but retrenchments are also taking place."

More than half of the job cuts at Maxtor in Singapore, or about 20 percent of the company's total work force, will be through layoffs. About 2750 workers may be hired at Maxtor's plant in Suzhou, China, as it moves production of personal computer disk drives there this year and next, said a spokeswoman, Jenifer Kirtland.

The Singapore government will try to find positions for those who have lost jobs, Lee said.

"But we must expect such restructuring to continue, as China and India transform themselves and Singapore presses on with upgrading to stay ahead," Lee said.

Singapore has cut taxes in four of the last five years, accepting budget deficits as the price for reviving growth.

                                                      Home