Singapore Business Outlook for 2016

Editorial Staff Economy, Futurism

Despite a general slowing of the global economy in 2015, Singapore experienced modest growth of 2.2 percent over the year. The economy is expected to remain resilient in 2016, despite challenging external economic conditions.

US interest rate hike to boost Singapore’s exports

When the US Federal Reserve raised interest rates to 0.25% in December 2015, the Singapore government had anticipated the move and was prepared for the hike. The Singapore dollar has been gradually appreciating in line with other trading partners in South East Asia, so that exports from Singapore continue to not cause disruptions for producers and consumers. With the increase in US interest rates, the Singapore dollar will be relatively weaker than the US dollar, giving a boost to exports to the US. The ongoing competitiveness of the Singapore dollar provides opportunities for business to export to the US in 2016, particularly in Singapore’s specialist fields of electronic goods, machinery, and other sophisticated products in the area of technology. The modest appreciation of the Singapore dollar will also ensure that it remains profitable to import and export to and from other South East Asian regions as well.

China’s economic slowdown

Analysts at Nomura have warned that businesses in Singapore should expect a negative outlook in the coming year, with forecasted growth of just 1.8 percent. As economies continue to slow across Asia, the region is predicted to experience its lowest rate of growth since 1998 in the next year. The slow-down will be largely driven by the economic slowdown in China, which has experienced growth of under 7% in 2015, leading to decreases in Chinese investment in Singapore businesses.

However, the outlook is not purely negative: third quarter figures have given some analysts hope that China and its economy are on the road to recovery. Further, China’s One Belt, One Road policy should encourage increased Chinese investment into businesses in Singapore in 2016, particularly in SMEs and startups.

MTI forecasts modest growth

The forecast for 2016 released by the Ministry of Trade and Industry of Singapore (MTI) predicts a more optimistic growth rate of close to 2 percent. Buoyed by predicted global and European progress in 2016, the finance and insurance industries are expected to grow, but the outlook for manufacturing is less promising.

The MTI highlights the low price of oil as hampering rig building and the marine and offshore sectors. Labour shortages and low unemployment are predicted to limit the growth of the service industry, particularly in the retail and food sectors. Additionally, the MTI warns that state interventions in China to rebalance the economy may not be successful, leading to a drop in the demand for imported products and services in the region. The ongoing volatility of the Chinese stock market could lead to large and sudden outflows of capital, putting additional pressure on connected currencies – including the Singapore dollar.

Managing the talent shortage

With unemployment levels of just 2% in 2015, businesses in Singapore have struggled to identify, hire, and retain the talent needed to expand their operations. The shortage of manpower has been a limiting factor in the growth of the Singapore economy, especially after the importing of foreign labour was curbed by the government in 2014. The industries hit hardest by this shortage continue to be retail and restaurants, where human labour cannot be automated or replaced, and these areas will face an ongoing problem in 2016. For many managers, the focus in the last year has been on maximising the productivity of their existing workforce to combat the shortage of new staff. Another approach has been an increase in the hiring of freelancers and contract workers both domestically and internationally to meet manpower demands.

Growth industries for 2016: technology and finance

The technology and innovation cluster is expected to be the major driver for Singapore’s growth in 2015, as Singapore’s investment in R+D in technology industries continues. As an economic sector which continues to grow globally, the finance and insurance industry is expected to provide strong growth too. The education and development sector is also expected to grow in 2016, primarily as a result of government schemes and incentives like the Productivity and Innovation Credit (PIC), Capability Development Grants (CDG) and the SkillsFuture Earn and Learn Programme, which provide funds for SMEs to train and develop their staff and to increase their productivity.

Outlook for SMEs: rising costs, but also new opportunities for expansion

With the shortage of labour and a moderate amount of economic growth, 2016 will be a challenging, yet exciting time for Singapore’s SMEs and startups. There will be rising costs associated with labour and the importing of raw materials – particularly those from China as its economy continues to experience volatility. Singapore’s advantages continue to be a top attraction for incorporating and launching a company in Singapore.

Successful SMEs will survive the ups and downs of the coming year by investing in staff training programs, promoting remote employment and using cloud technology to offset high rental costs. To retain talent, employers are advised to establish childcare provision schemes and programs for employees to continue their formal education.

Increasing automation will reduce costs and increase productivity, as well as complementing the region’s expertise in the technology industry. There continue to be a large number of opportunities in the technology sector for the development of innovative products and services, which agile startups can and should capitalize on by launching their operations in Singapore.

Update: Singapore economy grew at a better-than-expected 2.0 per cent on a year-on-year basis in the last quarter of 2015, advanced estimates show, and is expected to register a full-year growth of 2.1 per cent in 2015.