Five predictions on the business climate in Singapore for 2009 - By Dr. Mike Teng

1. Continued decline in many sectors
Many foreign companies based in Singapore will either wind up or move out. The manufacturing sector is expected to take the hardest hit with a slump in demand and manufacturers moving operations out to cheaper locations. Logistics, commerce and the service sectors will all show negative growth because of the decline in international trade, tourism and foreign investments. The Construction sector will take a dip towards the end of 2009 as private construction projects run dry and government projects will not be enough to make up for the shortfall. The Financial sector will continue to deteriorate with decline of the European banking system over 2009. The concern is that the EU may not respond as fast as the US administration to fix the banking problems.

In 2009, Singapore may not see any recovery and will probably face the full brunt of the financial tsunami. However, some relief may come about in the middle of 2009 as the spinoffs from the fiscal and monetary stimulus launched by the various central banks and governments in late 2008 start to kick in. The recovery if it comes will not be a V shaped but rather a U shaped

i.e.: we should expect a slow and gradual recovery instead of a sharp bounce back.

2. Home businesses will increase as joblessness soars
We should expect further retrenchment of management and executive staff to continue for most of 2009. Many foreign employees will move or be moved out. Laid off executives will find it difficult to find re-employment and need to become entrepreneurs and free agents. Thus, I see the growth of home businesses as these laid-off executives operate from homes. Multi-layer marketing, internet marketing, tutoring, consultancy and mentoring services will mushroom as these businesses sit very well with operators operating from homes.

3. Bigger companies will fail faster than smaller ones
Contrary to some analysts who predict that bigger companies have more resources to survive the crisis. I beg to differ; I believe that the bigger companies are more vulnerable. The credit crunch will continue till at least third quarter of 2009 as the fiscal and monetary stimulus put in place by the various governments start to kick in and provided there is no more collapse of major financial institutions. In the meantime, bigger companies (but not big enough that warrants government rescue) which are more heavily leveraged than the smaller ones may take a bigger fall. This crisis is caused by the financial de-leveraging and thus companies that are heavily leveraged are going to get hit the hardest. Smaller companies may have to cut back spending or merge together to share resources. They are more nimble and flexible to tide through the bad times provided they have not over-leveraged themselves.

4. Domestic sector becomes more critical as external demand declines
I see that we have no choice but to promote the domestic sector. During the past few crises, Singapore economy was resuscitated because of the recovery of the global economy. We did little to turnaround the economy ourselves. This crisis is different. The global economy will take sometime to recover. Thus we need to re focus on our domestic economy, notwithstanding how small it is. There is little choice, we have to help ourselves. This has to be a government led initiative - encouraging the consumption of Singapore made products and services, further investing in the two integrated resorts, pump priming the economy with fiscal spending on infrastructural projects, ensuring that we do not have a real estate market collapse, creating more civil service jobs as well as pushing forward more government construction projects. Many foreign companies will move out of Singapore or close down beset by problems that they face at home. This is something that we cannot control as decisions are primarily made overseas. However, we can help our Singapore. Thus, there will be an urgent need to boost our small medium size companies. It is heartening to see that our government is doing its best to help our domestic firms and now even considering dipping into the financial and national reserves to help the country out of this perfect financial storm. If our local companies also seize up because of the credit crunch, Singapore will be in for a more protracted downturn.

5. Businesses going back to basics
For the sake of survival, companies will have to go back to basics. They will not easily find saviors or white knights to bail them out of trouble as in the past. Even our government will have budget constraints as to who to rescue because many sectors will be in trouble and asking for help. We already see this precursor in the US where banking, automobile, steel seeking government bailout. Companies have to turnaround, transform and resuscitate their businesses, run their businesses efficiently and effectively, put in the right talents and business models, get their cash flow in order, etc They need to address the fundamentals of the business and get their act together. This is the time to test the mettle of our leadership to overcome the great difficulties that lie ahead.