After three years of battling the COVID-19 pandemic, Singapore signalled its official return to normalcy when it lowered its Disease Outbreak Response System Condition (Dorscon) to green in February, the least severe status possible.
Despite this welcome development, the local economy continues to deal with challenges on multiple fronts. Interest rates are likely to remain high for the foreseeable future, while inflation could continue to be sticky. Earlier this month (Feb 13), the U.S. Federal Reserve indicated that it would need to hike interest rates further to bring inflation down to its target rate .
These factors are likely to dampen Singapore’s economic expansion in 2023. Despite GDP growing by 3.8% in 2022, momentum slowed in Q4, and the latest non-oil domestic exports (NODX) numbers have reverted to 2020’s crisis levels, largely due to the global slowdown, tighter monetary conditions, and China's zero-COVID policy. Indeed, Singapore’s manufacturing sector, which was the key engine that kept the economy afloat during the pandemic, is already in recession. And while the re-opening of Singapore economy has helped boost growth in the services sector, that initial momentum is already waning. Apart from the buoyant hospitality segment, business expectations for services is down or flat.
This grim outlook will make it even more challenging for small and medium-sized enterprises (SMEs) to thrive in the coming year. Higher business costs stemming from inflation are a key concern for SMEs in 2023. Additionally, there is a severe manpower crunch in many sectors, particularly in services, further exacerbating the woes of SMEs. According to a survey by SBF’s National Business, 96% of businesses face manpower issues, which is making it difficult for many firms to pursue transformation efforts such as digitalisation, skills upgrading, and internationalisation.
However, there is cause for optimism. When exactly the economy rebounds will depend largely on how successfully China overcomes its current wave of COVID-19 infections, and for economic activity to resume back to normal. Some encouraging signs have emerged recently. After abandoning its zero-COVID strategy, a massive wave of infection hit China, affecting over a billion people in the span of a month late last year. However, this wave has since subsided, and experts predict that there will be a series of smaller, less severe waves in the future. If China can successfully navigate the road ahead, there may be an upside surprise in terms of growth for Singapore in H2, 2023.
To address these issues, on 14 February, the government announced on a prudent and calibrated budget for businesses. The focus of Budget 2023 for enterprises has shifted from providing immediate COVID-related support in previous years to promoting long-term capability enhancement and competitiveness.
In particular, the measures announced aim to help businesses remain innovative and adaptable in order to seize new opportunities. To achieve this, the government has allocated SGD4 billion to top up the National Productivity Fund, provided a SGD1 billion boost to the Singapore Global Enterprises initiative, and introduced the new Enterprise Innovation Scheme. These measures will help to increase productivity and innovation, as well as encourage greater internationalisation efforts. In addition, the Enterprise Financing Scheme and Energy Efficiency Grant have been extended to alleviate cost pressures.
By taking advantage of the enhanced support schemes to invest in digitalisation and automation, for instance, SMEs can get much needed help to address short-term issues such as manpower shortages, while laying the foundation for growth in the long term.
With uncertainty still weighing on the business landscape, Budget 2023 provides much-needed support to SMEs. On their part, local enterprises need to be proactive in dealing with the turbulence ahead, so that they can emerge stronger in the long run.
Watch the full video of Irvin's presentation below.
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