Singapore is better placed than most of its Asean neighbours to withstand a downturn. Source: Flickr
Few countries have been so consistently forced to live by their wits as Singapore. The crowded state, forced to leave the Malaysian Federation in 1965, has been required to adapt to countless external forces and prosper despite its limited natural resources and even more limited surface area.
But the resilient nation is facing fresh challenges, with prospects that this year will see minimal growth. Analysts are busy debating whether the republic faces a temporary setback or fundamental structural problems.
There are global uncertainties in Europe, Japan and most notably China and it is hitting Singaporean exports. Firms are dealing with weaker demand and slimmer margins, while tackling a tight labour market and rising business costs.
Singapore’s economy grew at a modest 2 per cent last year with most analysts expecting worse this year.
The Ministry of Trade and Industry said this year’s outlook worsened in the last two months as oil prices fell and market volatility rose. It now says growth could be as low as 1 per cent.
DBS economist Irvin Seah said: “We’re heading into a cold winter, mainly because of the uncertain and challenging global environment. We’re not getting enough lift from the United States. Even though we’re seeing some improvement from the euro zone, it has never been a key driver for the Singapore economy. We’re also facing more drag from China.”
And the chill economic breeze is being felt on the ground.
Singapore building supplier M Metal is familiar with the troubles affecting small firms in the city-state: rising costs, a labour shortage and reduced margins.
Revenues have remained resilient until now and for the first time in five years, M Metal is set to report a fall in profits this financial year, according to managing director John Kong.
“We are squeezed on both ends. On one end margins are down, but on the other I can’t hire more labour. We have not laid off people, instead we have frozen employment. I don’t want to retrench staff because if I do it affects their entire family,” says Kong. “So we’ve cut down our operating hours, cut down on some overtime.”
Amid this uncertainty comes next month’s budget with many looking to the new, untested finance minister Heng Swee Keat to address some of the city-state’s concerns.
Heng, who was appointed last October after running the education ministry, has acknowledged that restructuring is the buzzword.
He said: “Almost all businesses face this challenge, which is the need to restructure, because you are seeing more competition and changes in technology. Even though we have a period of slower growth globally, we have continued to encourage our companies to find global growth opportunities, even as we take measures to meet immediate challenges.”
He explained that the budget would look beyond the immediate challenges to provide a strategic plan for the tiny republic’s long-term future.
“We see very significant changes that are going on around us in the global economy, especially the regional economy. The more ready we are to change, adapt and respond to these very significant shifts around us, I think the better we will be, and we will be in a stronger position.”
He has been reminding analysts that not all firms are struggling in the current climate. “It is quite a variegated landscape now. And the policies will have to address this variegated landscape,” he said.
“Our forecast remains that we are likely to grow between 1 and 3 per cent, so while we face a slowdown, we are not in a recession, so I don’t think that is the central scenario in our view. So we have to continue to focus on what we need to do to manage in this slower growth environment.”
The manufacturing sector, which makes up 20 per cent of the Singaporean economy, has been hit the most intensely by the recent slowdown and falling demand for exports. The sector has been in recession for at least a year, contracting 5.2 per cent in 2015 compared with 2.7-per-cent growth in 2014.
The slowdown in China with its associated declining demand for imported goods will increase the challenges for the city-state’s manufacturers.
“In a global downturn, manufacturing is always the first to suffer… This year we will see the full impact of the manufacturing slowdown, with some spill-over to the services sector,” UOB economist Francis Tan explains.
The biomedics and chemical sectors are still recording growth but this cannot begin to counterbalance the electronics drop-off. Electronics, making up a third of Singapore’s manufacturing sector, contracted by 6.8 per cent in 2015. Transport engineering fell by a hefty 13.5 per cent in tandem with the oil price. The oil and gas industry was in “structural dislocation” worldwide, said Seah. “It’s not just the rig builders but the entire value chain… The impact is more broad-based than what the numbers are suggesting.” The precision engineering providers that service the fuel industry are also suffering from the declining prices.
Many observers seem less than positive for 2016. “It is not the sudden shock scenario we faced in 2008 when the rapid ripples from the Lehman collapse were felt,” Barclays economist Leong Wai Ho explains. “The current episode feels like a much slower, but more persistent, negative spiral of confidence, spending and activity.”
But it is not all doom and gloom. Singapore Airlines has just announced that it is looking to hire cabin staff in a shift from its traditional policy of only hiring to replace those who leave. Google is also recruiting to fill its new Singaporean engineering centre. Google vice-president Caesar Sengupta said the online giant wanted “to get closer to the next billion users coming online and to develop products that will work for them”.
Singapore banks, DBS, UOB and OCBC, are taking on more staff at the same time as international financial institutions, including Barclays, are shedding jobs.
Overall, it does not yet appear to be time for Singaporeans to press the panic button.
