SINGAPORE – Mr Ryan Ng, general manager of precision toolmaker Chong Feng Engineering, is surprisingly sanguine in the face of worsening business conditions.
“A downturn is a good time to look at internal processes, how to improve things, how to be more productive, and more competitive – so that when the upturn arrives you can catch a larger share of the market,” he told The Straits Times.
His small and medium-sized enterprise (SME) serves the aerospace industry and Mr Ng also believes that if the current downturn persists, it may see some smaller players collapse and give stronger players such as his company more pricing power.
However, that is precisely the scenario – a massive wave of bankruptcies and retrenchments – policymakers would want to avoid. Looking at the current data and the global economic environment, that will not be easy and it is clear that people like Mr Ng are the exceptions in the market.
On Aug 11, Singapore’s Ministry of Trade and Industry slashed its gross domestic product (GDP) growth forecast by a full percentage point to a range of 0.5 per cent to 1.5 per cent. In comparison, GDP increased by 3.6 per cent in 2022 and 8.9 per cent in 2021. Economic growth in 2021 was the fastest in 11 years.
Singapore has also downgraded its 2023 forecast for non-oil domestic exports and now expects a contraction of 9 per cent to 10 per cent.
Meanwhile, inflation has peaked but remains at a higher level than the previous decade’s average. All-items inflation reached 4.5 per cent in June, down from its peak of 7.5 per cent in August 2022 but above the 1.5 per cent average between 2010 and 2019.
This combination of slowing growth and rising prices presents a conundrum. High inflation is usually tackled with a tighter monetary policy – which also hampers growth.
GDP and inflation data are aggregates – like a bird’s eye view – of the overall economy and do not provide the full extent of the pain on the ground.
Export-driven manufacturing firms, especially those in the electronics sector, have endured steep declines in their sales and net profits in 2023, as global end-consumer demand eased off the peak achieved in the aftermath of the Covid-19 pandemic when people needed electronic devices to work from home.
Singapore’s top semiconductor equipment maker AEM Holdings’ net profit dropped 76 per cent in the first half of 2023 and its peer UMS Holdings suffered a 27 per cent fall in the same period.
With demand off the boil, companies are cutting back on operating costs, such as staff benefit expenses, and drawing down inventories while lowering materials purchases. Other precision equipment and component manufacturers are facing even more complex challenges.
Singapore-listed CDW Holding, which makes products used in consumer and office electronic devices, said the company faces intense price competition and shortening product life cycles.
“The challenging operating environment is further exacerbated by macro-economic factors like geopolitical tensions, in particular the US-China trade tensions, raw material shortages, supply chain disruptions and other inflationary pressures like rising labour costs in China. This has led to greater market volatility and uncertainty,” CDW said in a statement to its shareholders.
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