Special Report
2009 Economic Roundup
By all accounts, 2009 has been one of the most challenging years as yet witnessed by businesses around the world. Throughout the year, unpredictability was marked with global economists making multiple forecast adjustments, a testimony to the unpredictability of sentiments.
Towards the end of 2009, the general opinion was that 2010 would be a better year, with positive growth forecasts ranging as high as 5.5%. This was confirmed by the Ministry of Trade and Industry with an upper 5.0% growth prediction for Singapore, made in the third quarter of 2009.
The start of the year was lashed by the global financial storm from the latter half of 2008. Despite the economic firestorm, the construction, business services and information & communication sectors surprisingly remained strong in spite of the turbulence. Other sectors however, did not fare so well. In particular, the globally exposed wholesale and manufacturing sectors, along with the vulnerable retail industry were still in the doldrums, with sharp declines in both growth and demand.
Singapore’s traditional reliance on worldwide exports caused its economy to be most vulnerable to global fluctuations in demand. In fact, the island nation was the first Asian country to be affected by the US market collapse.
Fortunately, exports to Asian markets like Malaysia, Thailand, the Philippines, Brunei and Myanmar produced large positive net shift results. However, the overall demands of exports were still weak resulting in a continued performance dip for the wholesale and retail sectors.
Towards the second half of 2009, the labour market finally bottomed out, registering a slight growth in employment. Sales also started to improve but at a very sluggish rate. As a result, sales related issues like slower sales, increasing competition and payment delays continued to be some of the biggest challenges faced by companies. Yet those who had international operations were observed to be less susceptible to the slower sales issue as their overseas operations allowed them to continue to expand their clientele base and grow their sales in pockets of the international market that were still positive.
By the third quarter of 2009, a positive turn of events for the manufacturing sector was posted, boosting Singapore’s economic output. This great leap in growth was attributed mainly to the phenomenal production increase of active pharmaceutical ingredients.
As for the Singapore SMEs (Small & Medium Enterprises), the start of 2009 was an extremely challenging period for most, with 71% citing an uncertain economic environment as their key challenge in the next 12 months. In fact, 58% of SMEs anticipated sales to deteriorate in 2009, with half expecting demand to fall by Up to 20%. At the height of the recession, as many as 76% of SMEs reported slower sales.
For entrepreneurs who took the plunge in spite of the challenging market conditions, the outlook was unfortunately, equally as bleak. A troubling 69% of start-ups in their first 3 years of operation as at early 2009, experienced slower sales. Of these, 53% reported more than 20% in sales dip. Not surprisingly, 2 in 3 start-ups were not optimistic about their outlook for 2009, with 57% expecting to make a loss for the year.
With the lacklustre outlook, start-ups reacted, opting for cost cutting measures such as Freezing New Hire, Trimming Raw Material / Product Costs and Reducing Operating Cost as immediate actions that they would take to ensure their sustainability.
Thankfully, government fiscal stimulus across the world finally started to have a stabilizing effect for the global economy by the second half of 2009. This in turn, helped to improve consumer sentiment leading to a 0.6 output growth by the third quarter.
Locally, the Singapore government reacted proactively in support of the Singapore business community, particularly so for the SME community. Among the schemes that proved to be most beneficial, the Job Credit and Bridging Loan schemes stood out as the most helpful.
More importantly, the Jobs Credit Scheme helped to trim back job losses on a national level. By end September 2009, employment numbers grew by 15,400. The introduction of government guaranteed lending programmes have also enabled smaller companies ease their credit woes, caused by a sudden credit crunch resulting from the global financial system meltdown.
In terms of industry recovery, manufacturing output grew by 6.6% in the third quarter. The biomedical sector experienced a 64% improvement, while construction grew by a further, albeit slower 13%, compared to 19% in the second quarter of 2009.
Further evidence that we may indeed be at the edge of the woods comes in a recent DP Information poll with 700 companies of the SME community.
Of the 700 business owners that DP Info spoke to in October, 25% expected to see an upward turnover trend in the next 6 months. This is more than double of those who expect to see a continuation of their turnover decrease. Reflecting the optimism, 1 in 5 also expects profit to improve in the next 6 months while 14% expect profit to erode further.
Across all sectors tracked, perhaps the most uplifting news for business owners and workers alike is the fact that the number of companies expecting to hire more staff outweighs those expecting to retrench. The hiring expectation is highest in the commerce (25% vs. 2%) and services (15% vs. 1%) sectors for the next 6 months. This reflects not only better business demand in the near term for companies but also greater outlook confidence on the part of the owners for 2010. In addition, improved employment will certainly help boost domestic demand further, creating a multiplier effect for the economy.
| Changes in Staff Strength | Commerce | Manufacturing | Services | Transport / Storage | Overall |
|---|---|---|---|---|---|
| Increase by more than 10% | 4% | - | 3% | - | 2% |
| Increase by up to 10% | 21% | 6% | 12% | 6% | 12% |
| Remain the same | 73% | 92% | 84% | 90% | 84% |
| Decrease by up to 10% | 1% | 1% | 1% | 3% | 1% |
| Decrease more than 10% | 1% | 1% | - | 1% | 1% |
Come January 2010, a final validation will be released, in the form of the annual Singapore 1000 and SME 500 rankings and awards, where the top performing companies of 2009, in terms of Turnover, Profit and Return on Equity are awarded.
The annual ranking of Singapore’s top performing companies and SMEs serves as an excellent barometer of the resilience and strength of its largest and most successful corporations and SMEs in the backdrop of adverse economic conditions. Furthermore, it will identify the sectors that have best weathered the storm and that may point to the future growth and development of our economy.
As for crystal ball predictions, we would like to make the following bets. Outside of the seemingly resilient property and construction sectors, there will be pockets of sub sectors within the wholesale and manufacturing industry which will perform well despite evidence to the contrary for their sectors as a whole. Apart from the biomedical and chemical sub segments, manufacturers in metals and fabricated metal, alongside the furniture and furnishing industry is forecasted to perform better than their peers. Those companies engaged in agricultural and supermarket activities are also expected to do better in the wholesale and retail sectors.
One thing is for certain, rebounding from a lower base, positive GDP growth is definitely a high possibility. However, we need to be mindful that we are still a long way from the peak of 2007. As such, future plans should focus on ensuring a slow but robust and sustainable growth.
