How will a US slowdown or recession affect your organisation and industry, and the Singapore economy in general? What can businesses do in the event of a slowdown?
THE US recession had already started since December 2007. I predict that the federal funds rate will drop to one per cent by September 2008. After that, we will most likely witness a rebound and rally in the market.
If the recession is more prolonged, it would at most extend by another six months to March 2009.
Investors must remember that our present recessionary cycle is very different from the US recession between July 1981 and November 1982. In one way, it is similar to the 1981-82 one because the recession hit financial institutions such as banks and savings and loans particularly hard.
The significant difference lies in the fact that we now have the sovereign wealth funds stepping in to prevent these financial institutions from closing down. In addition, we have wealth distributed from oilrich countries in the Middle East.
Singapore is positioned to ride through the stormy weather in style! In these unique circumstances,
Singapore has invested in three of the world’s most exciting banks, namely UBS, Citigroup and Merrill Lynch. We have also lined up world-class activities to ensure a continuous influx of tourist arrivals to boost domestic consumption:
- Q1 2008 – Singapore Flyer
- Q3 2008 – Singapore Grand Prix
- Q3 2009 – Las Vegas Sands Marina
- Q3 2010 – Singapore 2010 Youth Olympic Games
- Q4 2010 – Resorts World Sentosa.
These activities will allow us to meet the challenges ahead. In the event of a slowdown, Singapore businesses should take advantage of this period to upgrade themselves through higher education, visiting other countries for opportunities and consolidating.
– Clemen Chiang
Freely Business School
Singapore can weather storm
SINGAPORE had been largely dependent on the US for its export market. However, in recent years, Singapore has successfully diversified its export markets to include China and India. In addition, its ongoing projects such as the integrated resorts, the hosting of the first Formula One night race and, most recently, the hosting of the 2010 Youth Olympics, would provide plenty of opportunities for the local market especially in the construction and services industries.
Hopefully, the ongoing IR projects and the tourism dollars being projected for the F1 race in
September would be sufficient to tide us over the US slowdown.
The only other economic factor that will pose a challenge is high inflation due to the double whammy of higher prices for both petroleum and food.
As an IT security company with headquarters in the US, with Singapore as its Asean and India headquarters, we will be able to sustain our growth by tapping the current ongoing projects in Singapore, as well as growing revenues in countries such as India and Vietnam.
While striving to increase our business revenues, we have to strive even harder to keep overheads such as travel, entertainment cost, rental and even remuneration packages to a bare minimal.
Therefore, Singapore is likely to be spared the economic meltdown in spite of the slowing US economy, as we have been taking steps to minimise our dependency on the US market. This is one giant leap of faith by the Singapore government in the right direction. In the words of Prime Minister Lee Hsien Loong: ‘We have dared to bring our dreams into reality.’
– Benjamin Low
Managing Director, South-east Asia and India
I THINK a lot will depend on how protracted the US recession will be. If the US slowdown lasts for two quarters, as some economists believe, then I think the Singapore economy might not be significantly affected. Singapore is now less dependent on the US than before andÂ isÂ quite well plugged to the Asian twinÂ growth engines of China and India. The Singapore economy has growth momentum on its side, with many projects like the IR, F1 and now the Youth Olympics, to stay resilient. However, if the US recession turns out to be severe, then not just Singapore but the global economy will be affected.
The steel industry, on the other hand, is going through interesting times. While 2007 was a good year for the industry, 2008 is beginning to look like an equally good if not better year. Demand for steel is going from strength to strength, not just domestically but globally.
In Singapore, demand for steel will see a further boost with more public projects in addition to the existing residential and office projects. Singapore is expected to construct a new University Town to host the Youth Olympics and there are planned expenditures to further expand our rail and road infrastructure in the coming years.
Globally, besides China and India which are consuming a lot of steel, the other two BRIC countries – Russia and Brazil – which used to be net exporters of steel are now instead buying steel. Russia – which benefited from the buoyant oil market – and Brazil – which benefited from the rise of both hard and soft commodities like iron ore and wheat – areÂ undergoing an infrastructure boom.
With the rise of commodities, there is also strong demand for steel in the shipbuilding sectors to build vessels to carry the commodities.
– Wee Piew
HG Metal Manufacturing Ltd
A SLOWDOWN in the US economy will undoubtedly have an impact on the logistics sector and UPS, but we are confident that we will continue to grow by generating greater synergy between our businesses. Being an open economy, Singapore is naturally more susceptible to external shocks.
However, the Singapore government has been successful in attracting investments, which will provide some buffer from an external slowdown. This, complemented by growth in other regions, particularly the Asia Pacific, will provide impetus for the economy.
Asia was a key growth area for UPS in 2007, and looks set to continue this year. Growing intra-Asia trade and strong demand from China and India will continue to drive trade in the region. By aligning our supply chain and parcel delivery businesses, UPS will ensure greater synergy and more competitive offerings for our clients across Asia.
Despite the challenges and a moderated economic growth forecast, UPS is positive that the
Singapore economy is resilient and diversified enough to withstand the effect of a US slowdown.
– Mary Yeo
EXPERTS agree that the US economy is closer to the bottom than the top. Given this, we all must brace for ways of coping in the event of a full-blown US recession. As experience has shown us, a downtrend does not mean we are in for a crash. I would say that those of us in the direct selling industry can be resilient to an economic crunch for as long as we are able to grow and expand distributorship.
Still, it remains critical to re-think business decisions having to do with the proper marshaling of resources, especially for small and medium-sized businesses which will be the hardest hit. The basics, of course – stick to budget, monitor business closely, keep collection coming in, and tighten financial control.
Others would be wrongly cutting costs by way of reducing employee incentives. I believe, on the contrary, that we must encourage pay for performance incentives.
At Best World, our strategy is two-pronged: to continue to grow company sales and to optimise employee productivity. I believe that even in bad times, we must reward people as long as they are clearly able to contribute better performance to grow the company bottom line.
This year, we have restructured our company bonus system by basing it on company profit instead of gross sales. I see this as a win-win situation, a mutually beneficial manner of giving everyone a stake in the growth and viability of the business during these critical times.
– Dora Hoan
Best World International Ltd
VISIONARY business leaders are already using technology to enhance sales growth, drive incremental efficiencies and deliver excellent customer service. In challenging economic times, companies must keep their eyes on the horizon while smartly managing short-term turbulence.
For example, EMC is helping companies of various sizes invest in IT infrastructure solutions that squeeze more value from flat IT budgets. Reducing the physical space needed for IT infrastructure, as well as lowering the power and cooling costs to support the infrastructure, becomes even more important in tightening economic times.
In a slowdown, it is also important – although not easy – to remain focused on product and service innovation. As a company, EMC will spend more on R&D than ever before to ensure we bring new innovation to our customers globally.
Having seen Singapore’s economic indicators, and the recent Budget, I am confident that the country as a whole, and the local and multinational companies based here, are well positioned to deal with any changes to the world economy.
– Steve Leonard
Senior Vice-President, EMC Corporation; and President, EMC Asia Pacific/Japan
THE US is in recession and I suspect this one will be protracted and will impact the rest of the world. Emerio is an IT outsourcing company with an emphasis on support and consequently, we expect our business to grow faster as US companies will need to do even more with less!
As far as the Singapore economy is concerned, there would be a short-term impact but I am confident that with Singapore’s ability to re-invent itself, we will be able to counter it and emerge stronger. A focus on Asia – not just China and India but also the rest of Asia – should see us sailing through this period.
– Harish Nim
Emerio Corporation Pte Ltd
See downturn as opportunity
THERE is too much attention paid to whether ‘an economy’ is in recession. My view is that different sectors have remarkably different dynamics which argue against a generalised view. For example, it is fairly clear that financial services, construction and probably the durable goods sector in the US are ‘in recession’.
However, agriculture, aerospace and international tourism are booming. I have been surprised at the strength of the recent retail numbers. At any point, some sectors are likely to be in recession and others booming. Asia is no different.
A lot of attention has been paid to whether or not the Asian economies and the US economy are decoupled. I’ve seen little high-quality data associated with this debate; analysts seem to quote data showing the declining percentage of exports from Asia going to the US. This is a fairly shallow understanding of decoupling.
Second, the level of coupling will, of course, vary significantly by sector. For example, I have been surprised by the extent that Chinese and Singapore-based banks have taken write-offs on the US sub-prime products – which just goes to show that ‘coupling’ can occur in mysterious ways.
I believe a number of key sectors in the US will go through a fairly deep recession. The US is a more flexible and responsive economy than most OECD economies, and will therefore restructure and recover more quickly then other countries such as Japan, Germany and France. This is one of the great strengths of the country.
The nature of most Asian companies is that they would rather lose money then downsize, though this is a generalisation. If Asian companies find markets in the US are being crimped, they will aggressively pursue other markets. A Chinese toy manufacturer will not undertake layoffs because of a US slowdown. They will ask: Where else can I sell these toys?
As a result, whether Asia is currently decoupled from the US, at the end of this down-cycle Asia will be more decoupled from it than before. But it won’t happen automatically or smoothly; Korea and India are simply not going to accept Chinese toys as easily as the US. The optimistic case is that these frictions result in new resolve for the World Trade Organization and consistent global trading rules. Of course, there are pessimistic cases.
For companies, there is the classic advice: Cut costs and find new sources of revenues. I’m a consultant – of course I would say this! Just as important is to have a clear sense of history – who were the winners and losers in your sector in the last downturn? What did they do to gain share and maintain their financial performance?
The worst thing you can do is just hunker down and wait for the next upturn. Get your management together and figure out how to convert the downturn into an opportunity. If you don’t have some great ideas – hire a consultant!
– Charles M Ormiston
Bain & Company
IT IS widely misunderstood that a slowdown or a recession will affect every company that is doing business with the US. This may not be the case as there are some recession-proof industries. I consider the aftermarket tyre industry to be such an industry. A slowdown in the auto industry affects the sales of new vehicles – but existing vehicles still need tyres to ply on. Within the tyre industry, the major brands may feel more heat than the budget brands. There is a tendency to shift from an expensive branded product to a non-branded economical product in such an environment.
I have seen a surge in business recently which strengthens my belief that the market is shifting its purchasing pattern. As such, I do not think that the companies operating in the ‘budget brand’ category in the after-market auto industry will be affected. In fact, this is the time to go after business which was not accessible in the past. Now is the time that customers are actually looking for value.
As a precaution, however, it is imperative that businesses start spreading their chips into other markets and protect their existing business by investing in business/credit insurance, which will cover them adequately in case of any default.
– GS Sareen
President and CEO
Omni United (S) Pte Ltd
MY ASSESSMENT is that a US slowdown will have a material impact on Singapore only if it is prolonged and severe. This is due to our sound economic fundamentals, diversification of our economy away from manufacturing and electronics, as well as our location in a high-growth region with a large middle-class market and educated workforce.
In times of market volatility, we foresee growth opportunities over the next few years given large foreign investment flows into the region, booming regional economies that contribute to rising mass affluence, as well as higher demand for wealth planning from fast-ageing societies.
As an Asian specialist, the DBS Group is well-placed to seize these opportunities because of our experience and sound understanding of the regional markets.
Businesses caught in the slowdown can look into ways to better manage their costs, explore other potential avenues for growth, possibly in new untapped markets, consider flexible work arrangements and raising staff productivity.
– Deborah Ho
DBS Asset Management
AS THE world’s third-largest IT services provider, Fujitsu Asia provides solutions for customers in the Asean markets of Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam – but not the US. Therefore, as long as the IT demand in our target markets remains healthy, we needn’t fear that a US slowdown or recession will impact us negatively.
The Singapore economy in general should also continue to do well because we are not as dependent on the US economy as compared to, say, five years ago.
Most indicators suggest that the IT demand will remain very strong this year. For example, a recent Gartner survey of about 1,500 chief information officers (CIOs) worldwide revealed that IT expenditure is expected to surge by about 8.3 per cent in Asia this year – far outstripping the 3.3 per cent rise in the global average.
The report also identified that in 2008, the focus areas among Asian CIOs include IT infrastructure, application rollouts and other areas. The implication here is that, despite the possibility of a US slowdown or recession, Asian companies are still prepared to invest in technology to prepare themselves for future business growth.
This makes sense because it can take months or even years for an IT investment to progress from conceptualisation to rollout.
Hence, companies that delay making vital investments during a downturn could be unknowingly disadvantaging themselves when things are back on the upswing. After all, without added headroom – which IT investments can provide – for scaled-up operations, companies might be unable to capitalise on the business opportunities that an economic recovery presents.
I always believe that adversity and opportunity exist togther. A slowdown in the US may pose some challenges, but it indirectly provides an impetus for companies to prepare themselves for future growth, which is merely a matter of time. And leading IT companies like Fujitsu Asia can help companies with such preparation efforts.
– Noboru Oi
Fujitsu Asia Pte Ltd
WITH the US being the world’s largest economy, economists and analysts have said that any signs of slowdown could impact everyone, especially those economies or industries highly dependent on the US. Some have warned that the effects of a drop in consumer spending could impact the Asian electronics manufacturers.
That said, we see resilience in the global economies. Where there are challenges, we also see some opportunities. All the more, businesses need to focus on creating value for their customers to maintain their competitive edge and strengthen their position in the industry.
For Excelpoint, we believe that it is critical to focus on executing well to strategy, maintain a strong cash position to capture opportunities, and be prepared to make adjustments where necessary to mitigate any risks. We will continue to invest in emerging markets where our customers have ventured into, and collaborate with them and our global partners to capitalise on opportunities in those markets.
Important, too, is the continued emphasis on innovation. We want to be able to research and develop new applications and technologies with the aim to offer our customers a wider range of solutions. This will help us emerge as winners in the industry in the long run.
– Albert Phuay
Chairman and Group CEO
Excelpoint Technology Ltd
WHILE we believe that a potentially bearish US economy will have a global impact on Organisations and markets, this is an opportunity for many companies to take a hard look at how their operations can be optimised for efficiencies and how new businesses can be gained by looking beyond traditional means of getting to their customers and the marketplace.
There is a growing trend where deploying innovative technologies such as virtualisation and open source are helping businesses achieve these goals by optimising how information technology is supporting their existing business. Increasingly, businesses are also looking at more cost-effective and efficient channels to get to the business partners, customers and the marketplace by making information technology supplement their existing route to market.
We are confident that this is one way that businesses can save money and grow their businesses and give them a better chance of weathering not just this slowdown but any slowdown.
– Ong Chee Beng
Managing Director, Singapore
IT IS still premature at this point to predict the extent of the US slowdown and to project how it will affect the Asia Pacific, and Singapore. However, with globalisation and lessons learnt from the Asian crisis, countries like Singapore are now more hedged against fluctuations from the US economy with greater investments in fast-growing markets like China and India.
I believe when one door closes, another window opens. In times of cyclical downturns, it is the onus of business leaders to proactively seek new opportunities (perhaps investing in emerging markets in the Asean region) to diversify risks and chart future growth. Many companies like us would have laid the groundwork in recent years, coupled with a long-term strategy, enabling us to ride out cyclical downturns, resulting in business continuity and growth prospects for the future.
– Bryan Low
Vice-President and Managing Director
AMD South Asia
A US downturn will almost certainly have a negative impact on Singapore’s economy, and it is unlikely that the childcare industry will be spared. At Cherie Hearts, for instance, we expect that a number of parents could look to alternative childcare options, such as home-based care by grandparents.
The best course of action that businesses can take in the face of an economic slowdown is to invest in training and development, as well as R&D. This will be our best bet in preparing ourselves to ride the economic growth once the dark clouds blow by. Cherie Hearts, for one, will be stepping up efforts on staff training, as well as curriculum research and development.
– Sam Yap SG
Group Executive Chairman
Cherie Hearts Group Int’l Pte Ltd
S’pore will be insulated by Asia
A RECENT study by technology research house Gartner shows that despite the US slowdown, Asian firms still plan to increase their annual IT budgets by about 8.3 per cent in 2008.
I believe that companies’ priority this year will be on technologies that directly improve their business performance. CA will continue to create and refine software that can help firms simplify and unify their IT operations, and which deliver tangible business value.
With regard to Singapore, the projected growth in Asia’s emerging economies should insulate us somewhat from the US slowdown, although many firms will still come under pressure to control costs.
This means that organisations should work on better tapping into their current resources. Besides using technology to streamline their operations, they should look harder at integrating technology with their people and processes. Best practices and consultancy services to achieve this are readily available, and businesses should proactively check them out.
– Brenton Smith
Managing Director and Area Manager, Asia South
THE slowdown in the US may dampen business confidence and hurt our export-led economy but we will more likely be impacted by rising inflation and rapidly increasing business costs.
Many businesses are linked to regional and global customers, thus removing our reliance on just one country for trade. We are moving into Middle Eastern economies. We already have strong business links with the Chinese and Indian markets and these should help cushion the impact of the US slowdown. However, what seems to be at the forefront of many companies’ concerns is the more pressing problem of rising wages and a shortage of talent.
– Dhirendra Shantilal
Senior Vice-President, Asia Pacific
FROM a geographical perspective, companies need to anticipate an economic slowdown in the US and switch activities and priorities towards growth regions like Asia. In Asia, because of the integration of global markets, developing countries will also be impacted, but this will be overshadowed by the domestic drive that we are seeing in countries such as China, India, and Southeast Asia.
Regarding the IT industry, there is no doubt that it will be impacted too. According to a recent IDC report, global technology spending will experience slower growth next year because of the current uncertain economic climate. Therefore, IT vendors and service providers must also stay ahead of the game by being flexible and making sure they adapt to these changes.
Last year, Serena Software moved to a software-as-a-service model and this is paying dividends for us now. In this environment of economic uncertainty, it is natural for companies to hold back on their capital investments to mitigate their risks. Therefore, the ability to adopt on-demand services on a pay-as-you-go basis is a perfect sourcing strategy for businesses seeking greater cost controls and flexibility during tough times.
– KC Yee
Vice-President, Asia Pacific
WHEN the world’s largest economy goes into a recession, most industries will be affected one way or another. Businesses need to understand that and start taking steps to balance the risks of a slowdown in the US. Businesses should look beyond the US market to cushion the downturn, if any.
Asia presents itself as an excellent opportunity for business growth.
Businesses can start by diversifying their clientele to reduce the risk of relying on a particular industry.
Riverstone, for example, is maintaining its lead in Asia for high-tech cleanroom gloves by expanding our clientele beyond the major players of hard disk drives and semiconductors.
For now, the demand for the high-tech clean-room consumables continues to grow and Riverstone intends to ride this trend.
– Wong Teek Son
Executive Chairman and CEO
Riverstone Holdings Ltd
AT AT&T, we are focusing on the strong growth engines in Asia Pacific – like China and India, but also the emerging markets in South-east Asia – and plan to continue investing in our business here to mitigate effects of a possible slowdown of the US economy.
Macro-economic data, ranging from the UN to the World Bank, shows that growth in Asia Pacific should be expected to continue, though maybe at a slightly lower rate than in the previous extraordinary years. Asia-Pacific economies are considered to be quite well-prepared to manage the continued uncertainty in the external environment coming from the US and, for example, the oil markets.
With our region continuing to be the fastest-growing region globally, a focus on such overseas opportunities can help minimise a potential dip in the US economic growth. Therefore, I would expect a continuous commitment to this region from global MNCs like AT&T. Most likely, we will see the further creation of high level jobs, continuous investments and more and more products and services being developed and managed in and out of the Asia Pacific – for a growing number of customers in this region.
– Collis Loh
Country General Manager
AT&T Business, Singapore
A US slowdown or recession will have some, but not catastrophic impact on the Singapore economy, as a growing driver of Asia’s growth has been fuelled intra-region. Thus, while the US curtails its consumption demand, this will be counter-balanced by the continued rise of Asian consumption – whether in China, India, or even Vietnam.
Having said that, in the event of a slowdown, having the right people to work and manage your business is critical to weathering a tough economic environment. The companies who emerge winners will be those that are focused on measuring and improving productivity, including that of their workforce.
– Su-Yen Wong
Managing Director, Asean
Mercer (Singapore) Pte Ltd
Be ready for tough times
TECHNOLOGY spending is normally a lagging indicator of an up or down-market. Our order book and sales pipeline currently look very strong. If we are to see slowing tech spending it will most likely hit Asia three to four months from now. So far, US multinationals, even in the financial services sector, are keeping up their spending with projects still being executed. Only one major client that I have met recently has talked of deferring a project. Companies obviously need to have a Plan B ready for any slowdown in spending. It’s important to be ready with scenarios so that we can adjust our model as any changes unfold.
– Bill Padfield
THE US will continue to be the leading global economy for many more years. However, the print, publishing and media-related industry as a whole, my organisation included, has also diversified, doing a substantial amount of business with Britain, the Middle East and the EU countries.
On a national basis, the US is one of our main trading partners. Consequently, a US slowdown or recession would, together with many other Asian countries, definitely affect us negatively. Gloomy markets, recovery and growth are all part of the economic system.
Singapore businesses can reduce this looming negative impact by aggressively diversifying investments and export makets – which we have already done to a considerable extent.
With prudence and foresight, our businessmen could further move into Russia, the Middle East, the Korean peninsula and other Asian countries, Latin America and Africa.
Singapore businesses – especially our cash-rich investors and exporters, be they in mindshare leadership, providing services or manufactured products – should reduce over-dependence on the US.
– R Theyvendran
Chairman / Managing Director
Stamford Media International Group
A US slowdown or recession will have a negative impact on the global economy. US consumption has been instrumental in helping to boost world economies for several years. The growth of China and India is not going to be able to make up for the shortfall in US consumption in the event of a major cutback in spending in the US.
In a similar vein, manufacturers in Singapore will be negatively affected by the US slowdown as their products are mostly exported overseas. CEOs need to understand that it is no longer business as usual. Fortunately for my company, we will be able to comfortably ride out the tough times as we are a multinational company that has recognised the need to change much earlier.
For those businesses which are financially weak, it is important to restructure quickly to face the new harsh realities. They have to review their cost structure to ensure that they remain cost-competitive.
Companies need to penetrate markets such as the Middle East, China and India, whose economies are still booming. However, for weak companies, it is better to be healthy before expanding overseas, or their limited resources will be further dissipated. They should get their act together in Singapore first, such as putting in place a strong and competent management team and getting a positive cash flow. There are opportunities in the recession too as many weaker competitors will be knocked out of the race.
– Teng Yeow Heng Michael
TR Formac Pte Ltd
A US recession will cause uncertainties and undulations across the globe, but economic giants like China and India can cushion some of that ripple effect. As expounded by Minister Mentor Lee Kuan Yew, increased domestic consumption and investments in infrastructure, which serve to sustain a robust financial core, can also help weather the economic storm.
Local businesses, particularly SMEs, must be ever-ready for unforeseen events and have contingency plans in place during a period of decline. These include cost-cutting measures like downsizing and reducing overheads as well as increasing savings and investing in short-term assets that can be liquidated in times of need.
– T Chandroo
Chairman and CEO
Modern Montessori International
Singapore may be hit
THERE is no doubt that any slowdown or recession in the US economy will have a direct impact on the Singapore economy. Although Minister Mentor Lee Kuan Yew has stated that Singapore will not be too badly affected should the US catch a cold, prevention is better than cure.
As electronics is an important sector that exports to the US market, any contraction in the US will have immediate effect on this major industry which contributes a large percentage of the manufacturing exports. To mitigate any drastic drop in exports, IE Singapore should support our manufacturers in aggressively sourcing new emerging markets in the Middle East, South Asia and North-east Asia. A better option would be to shift the bases of production closer to the markets.
Pakistan has been identified as a pivotal centre for electronics serving the Middle East and South Asia, while North Korea is also a focal centre serving Greater China and East Asia.
It is timely for the Singapore Business Federation to organise missions to these key centres to explore, exploit and extract the opportunities for exports, investments and R&D, etc. I am confident that the electronics sector would be nimble enough to ride out any economic setback in the US. Let’s pull ahead.
– Derek Goh
Executive Chairman / Group CEO
Serial System Ltd
I BELIEVE the signs indicate that the US is in a recession or on the verge of one – with consumption going down, interest rates being reduced, and the implementation of a US$152 billion package to stimulate the economy.
In such a scenario, I would suggest that Singapore businesses take a conservative approach by containing costs, ensuring that forecasts are conservative and watch inventories. When there are opportunities to monetise assets, I would proceed, as cash is king in this situation.
Until India and China dominate the world economy, I believe that whatever happens in the US will have an adverse impact on Asia and Singapore, although this will be less than before. Singapore has taken enough precautions to fend off any cold the US might suffer, but again it depends on how badly the US will be affected, as the financial crisis continues to unfold.
– Lim Soon Hock
Plan-B Icag Pte Ltd
THE sub-prime mortgage crisis has now ballooned into a deepening credit crunch, leading to less liquidity for a host of financial assets and structures. Although the US Federal Reserve has reduced interest rates in recent months, there is still a crisis of confidence in the US which mirrors the experience in Asia during the 1997 financial turmoil.
Clearly, the US is already in recession. Its extent and duration will depend on how long it takes for confidence to be restored. And the signs are not good because it seems that investors, banks and markets are getting more – and not less – jittery with each passing week. The impact of the US recession on Asia may be limited if it lasts six to nine months. However, Asian economies – even Japan, China or India – are probably not strong enough to weather a prolonged economic depression in the US.
As a privately-owned bank, Rabobank is taking steps to strike a balance between supporting our long-term customers, and preparing for a possible slowdown in this part of the world. On the one hand, as a financial cooperative, we must do our best to ensure that the funding needs of our customers are met. On the other hand, as a bank with a Triple A credit rating, we must maintain prudent lending policies, exercise due diligence and read market warning signs early and accurately.
Every cloud has a silver lining, so a widespread recession could perhaps moderate the worldwide trend of rising inflation, which is caused by escalating prices of commodities, labour and land.
If Singapore enters a recession, hopefully workers will realise that wage increases cannot outpace productivity gains indefinitely without companies losing competitiveness – which may ultimately lead to employees losing their jobs.
– Goh Chong Theng
General Manager, Singapore
ANY US slowdown will impact businesses here. Everyone’s hope is that it will not be a contagion with business confidence being dragged down. The flipside is that the costs of US goods and services will be lower with a weaker dollar for those who do business with the US. This sliver of opportunity should enable us to offer more attractive and competitive goods and services.
On the other hand, people are hoping that the boom in China, the Middle East and elsewhere will provide a counter-balance. Like many Singapore companies, we stand our business on many legs in different countries. We hope to re-adjust our balance even as one part of the business is down.
Indeed, it may ironically be the balance we need with the current inflation and a resource crunch.
But more worrying is the way events might turn out. The great uncertainty and turbulence might catch many businesses wrong-footed. We all need to be vigilant.
– Liu Chunlin
K&C Protective Technologies Pte Ltd
A RISING tide lifts all boats, but unfortunately, the inverse is true as well when it comes to a US recession. Asia is not decoupled from the US or any other world economy and this should come as no surprise. Access and dependency go in lock-step and capital markets are extremely efficient at providing access to virtually any market segment in any economy – the sub-prime market, for example.
Diversification is the key and where countries are not efficient at achieving balance our firms must be.
An organisation’s best hedge is a global revenue stream, a balanced product set, and access to a wide range of market sectors.
– Mark Bashrum
Regional Vice-President, Asia
DESPITE the slowdown in the US, Singapore’s financial and construction services clearly remain the bright spots, fuelling a soft-decoupling story for Singapore from the US economy. Still, with rising inflation and a negative real interest rate environment, private banking, like other businesses, cannot completely ignore the US downturn.
Investors, regardless of their wealth bracket, behave differently in this climate. Private banking clients tend to lower their risk appetite, gravitating towards conservative products with lower yields and margins. However, my private bankers must also be able to give clients the confidence to look beyond the downturn, instead of focusing on the storm clouds. It’s essential that we take a fresh look at our clients’ changing situation or new environment. Then we make sure our products and services adapt to help clients navigate the storm and come out on top.
– Barend Janssens
ABN Amro Private Banking, Asia
THE US is a major consumer of goods and services which are manufactured all over the world. In the case of electronic goods, consumer demand will fall. Singapore, as a manufacturing site for such products, will be affected. Both facility and equipment utilisation will consequently be impacted.
Following from this, there is likely to be a reduction in labour and overhead costs by businesses to keep costs low and ride through the storm.
There is no miracle solution to overcoming recession as it is part of the business cycle. During a recession, businesses have to be prudent and keep a tight control over costs. We also have to explore other markets such as China and India to sell our goods but this does not happen overnight.
The government can provide support in terms of incentives, rental reductions, property tax adjustments, energy rate cuts and other such measures which will help companies through the turbulent period.
– EH Lim
IN MY view, the US will definitely suffer a recession this year due to the sub-prime problems and this will cause a global economic meltdown. Stock markets worldwide will decline by not less than US$7 trillion. The US consumes 25 per cent of the world’s products so a recession there will affect the world’s economies. Even Singapore’s growth this year is likely to be less than 4 per cent because of it.
The travel and tour industry will also slow down. Luckily, Singapore is a debt-free country; its dollar may well be equal to the greenback at some point.
SA Tours will promote travel to the US, for enjoyment as well as to build relationships to do business there. Singapore is a marketing hub and Singaporeans can market products produced in the US throughout Asean. A recession in the US may well be an opportunity for Singaporean businessmen to do business with Americans.
– Ng Kong Yeam
Group Executive Chairman
Sino-America Tours Corporation Pte Ltd
A US recession would have varying degrees of impact on multinational organisations in Singapore, as well as the local economy, given that Singapore is a major trading partner of the US. However, as for the IT industry, we don’t foresee a huge negative impact in our region as economies like Singapore are still experiencing buoyant growth and companies are investing in technology solutions to provide them competitive advantages.
In fact, we believe that a critical aspect to managing such potential risks for organisations is to have access to accurate and timely information and business intelligence tools that facilitate quick and effective decision-making.
– VR Srivatsan
Vice-President, South Asia
CREDIT crunch, downturn, or recession, the coming year is going to be a challenge for the global economy – and the IT industry will face the same pressures. While there’s no doubt that tighter belts will mean IT departments paying close attention to IT vendors and service providers performance, it will not be simply the case of the thumb-screws coming out.
In our case, even amid economic uncertainty last year, Interwoven’s fourth quarter and full-year performance was the highest we have ever recorded. During an economic slowdown, we can see an increase in online marketing budgets – more cost effective than traditional marketing methods. So while the spend from IT may reduce in a slowdown, we expect to have access to a larger portion of the marketing budget. The tougher times are, the more important it is for companies to measure and make the most value out of their budgets.
We anticipate that other IT vendors and service providers will also find a niche to prosper during these times of economic uncertainty. Companies are realising that business efficiency can be improved by innovating aspects of their business using IT.
– Sanjay Aurora
Vice-President of Asia Pacific
Source: Business Times 3 Mar 08