Singapore’s forecast for economic growth this year is looking rather gloomy for the sunny island. Just yesterday, The Ministry of Trade and Industry (MTI) announced that the GDP growth forecast for 2019 has been “downgraded” between 0% to 1%. Overall, the Singapore economy grew marginally by 0.1% on a year-on-year basis in the second quarter. On a quarter-on-quarter seasonally-adjusted annualised basis, the economy contracted by 3.3%, a reversal from the 3.8%.
The announcements come amidst rising global trade tensions and given Singapore’s positioning in the global trade industry, it is no surprise that the island is set to feel an impact. With the recent announcement of possible tariffs on an additional US$300 billion of imports from China by the US, the escalation of the trade conflict seems imminent and MTI predicts this to “severely dent” global business and consumer confidence - with adverse implications on global trade and global economic growth.
MTI stated that a “steeper-than-expected slowdown of the Chinese economy could be precipitated" by additional tariffs imposed by the US and this could in turn lead to a sharp fall in Chinese import demand, and negatively affect the region’s growth. Other factors cited by MTI included the risk of a “no-deal” Brexit and the uncertainties in Hong Kong, the trade dispute between Japan and South Korea, as well as geopolitical tensions in North Korea and the Strait of Hormuz.
"These prolonged uncertainties as a result of heightened risks in the global economy could further weaken business and consumer confidence, and lead to a cutback in global investment and consumption, thereby lowering global growth," MTI said.
It added that against this challenging external macroeconomic backdrop, and the deepening downturn in the global electronics cycle, the Singapore economy is likely to continue to face strong headwinds for the rest of the year. On the back of the news and ahead of the 2020 financial planning season, Marketing spoke to agency professionals to find out how they plan to gear up to counter the challenging times ahead.
Rika Sharma, managing director of Digitas told Marketing that while manufacturing has seen a slowdown, there is still growth in industries such as finance and insurance. “Yes, let’s acknowledge that there is slowdown in the Singapore economy. But at this stage it’s too early to use the feared ‘R’ word,” she said.
She added that working in the agency space, she remains ‘cautiously optimistic’ as not all industries are equal. “Agencies work across multiple industry sectors and therefore there is flex in agencies to double down on companies that are still witnessing growth,” she said. Additionally, agencies operating in the digital economy also have the benefit of deploying digital technologies and leveraging innovation to more effectively and efficiently accelerate their own growth and the companies they service.
For Sharma, when it comes to 2020 planning, the focus will be on driving topline growth while ensuring costs are being managed more aggressively. The main areas to manage costs, she elaborated, could range from efficient talent deployment (right person for the right job, technology-enabled ‘waste’ management), reduction in unnecessary travel-related costs or even better optimisation of physical spaces. From a growth perspective, a laser sharp focus will be placed on growing industry sectors that are rooted in data, digital and technology - a clear marketing transformation proposition that drives value for businesses, focus on talent acquisition and development plans especially given the crunch for digital talent in Singapore.
According to Ranga Somanathan OMG CEO, Singapore & Malaysia there will be a lag between the trade war effects on business to consumer sentiment. For this year, he sees “minimal impact” on 2019 forecasts for advertiser budgets. Moreover, independent of the headwinds in macro-economics, advertisers and agencies have actually been refocusing their go-to-market strategies for quite some time now, fuelled by technological disruption and changes in consumer behaviour.
“I believe we’ll be in a better place to deal with any economic conditions that emerge,” Somanathan said. He added that both OMD and PHD have been working with clients and media partners to drive impact and effectiveness - even as the industry continues to fine-tune the fundamentals in driving efficiencies. “We are doing this through specialist, strategic and solution-focused conversations, and not just aiming at the lowest price point,” he added.
Meanwhile, Avery Akkineni, VP, VaynerMedia Singapore said:
Economic headwinds certainly influence media budgets, which are often the first to go in times of uncertainty.
She added that since Singapore serves as a regional hub for many multinational brands and agencies with diversified client portfolios across borders, the slowdown will be especially challenging for Singapore-only focused agencies. For Vayner Media, it primarily works with regional clients across APAC, barring China.
Nimesh Desai, CEO of Wunderman Thompson Singapore however, was of the view that slowdown is likely to impact all agencies and being the head of the Singapore office, there definitely is an added pressure. But at the end of the day, the true test of an agency will be on how resilient it can be in the face of adaptability. “Budget pressures are not new. And each time we face these curveballs, we find more optimal approaches to how we navigate. The signs of a slowdown are already present, but at the same there isn't a lack of opportunities to continue growth,” he added.
Local agency BLKJ co-founder and CEO, Rowena Bhagchandani said the news doesn't come as a surprise to the market as tightened purse strings, clients looking for adaptability, and the need for quick turnaround has been the reality for agencies for some time now. Bhagchandani and her team are currently also eyeing regional work to ensure scalability and growth.
"We need to keep working hard at the value we add to our client’s business, to continue to collaborate constructively with new players in the market and hold our people closer in the face of uncertainty," she said. Bhagchandani predicts that moving forward, clients will probably start issuing more open briefs with a mixed group of digital, social, advertising, PR and media agencies responding to them. "The client could end up picking one or all which is why fluidity and agility is so important," she added.
However, Goh Shufen, co-founder and principal of R3 was of the view that when budgets are flat or trending downwards, clients and organisations do not necessarily have lower business targets to achieve. This will force a focus on measuring impact and effectiveness, and not just costs. Specific to Singapore, she doesn't see clients trimming down budgets but rather becoming more mindful about accountability and getting true value.
Overall, the wholesale and retail trade sector saw a big hit as it contracted by 3.2% year-on-year, larger than the 2.5% decline in the previous quarter, which MTI said was due to the decline in the machinery, equipment and supplies sub-segment. The latter was in line with the fall in Singapore’s non-oil domestic exports during the quarter, especially in electronics. Meanwhile, the retail trade segment also contracted as both motor vehicular and non-motor vehicular retail sales fell. The manufacturing sector in Singapore has also faced a fair bit of struggle as it contracted by 3.1% year-on-year, sharper than the 0.3% contraction in the previous quarter.
While, the information & communications sector grew by 4.1% yoy, it eased from the 5.2% growth in the previous quarter. Growth was largely driven by the IT & information services segment, which MTI said “expanded at a robust pace on the back of healthy demand for IT solutions”.