Singapore’s labor market, which expanded at the slowest pace in seven quarters, is expected to cool further as companies appear to be more cautious on hiring and giving pay hikes, according to the manpower ministry.

The economy added 23,700 jobs in the second quarter, down from the 33,000 in the first three months of 2023, according to advanced estimates from the Ministry of Manpower on Thursday, in signs that demand continues to ease amid headwinds in the global economy.

Employment growth in the April-June period was mostly from non-residents in the construction sector amid sustained demand for housing, it said.

Retrenchments moderated to 3,200 from 3,820 in the prior quarter, as manufacturing layoffs eased while the services sector took the biggest hit. Overall jobless rate rose slightly to 1.9%.

The employment numbers, a key indicator in domestic inflation, are broadly in line with policymakers’ expectations that the current tightness in the job market will start to ease in the second half of the year, lowering labor costs passed onto consumers.

“Labour market conditions could soften in the coming quarters,” the ministry said in the statement. “Looking ahead, firms appear to be adopting a more cautious stance towards hiring and wage increases,” it said. The proportion of firms which indicated an intention to hire in the next three months declined to 58.2% from 64.8%.

Thursday’s reading supports the case for the Monetary Authority of Singapore to extend its pause on policy tightening when it reviews settings in October.