Outlook dims for Singapore Inc as economy moonwalks

SINGAPORE - During Singapore's full moon festival last month, employer John Kong was focused more on cost-cutting than celebrating.

Not sending his clients traditional mooncake gift packages saved him S$14,000, and his 60 workers at building materials supplier M Metal Pte Ltd didn't get a pay rise either.

Having grown at a break-neck pace that transformed what half a century ago was a seedy colonial port into an Asian Manhattan, Singapore is now bracing for a prolonged period of low growth, darkening the outlook for the city-state's deeply indebted firms.

"When you talk to building infrastructure groups, it sounds depressing," said Mr Kong, who faces a 10-15 per cent sales drop this year, the firm's first in its five-year history. "Everyone seems to be asking 'what's going to happen to me in three months?' Companies are not getting the orders, there are fixed overheads, so the first thing they do is slash marketing budgets and the next thing is they cut the number of people."

As a regional centre for trade, oil services and wealth management, Singapore's US$300 billion (S$418 billion) economy punches above its weight and serves as a barometer for Asia's other export dependent economies.

China's slowdown has hit Singapore's manufacturers and shippers, the slump in commodity markets is weighing on its oil and gas sector, while a rise in bad debts and a regulatory crackdown has hurt its financial services industry.

The result: earnings forecasts for Singapore-listed companies are falling at among the fastest rates in the world.

Projections for next year's net income have come off by 4 per cent on average over the past three months versus a 0.2 per cent fall for the rest of Asia Pacific, according to data from Thomson Reuters.

Companies are also struggling with debt burdens that have ballooned since the financial crisis, even as bottom lines have shrunk.

While net incomes are down almost 40 per cent since June 2008, net debt has more than doubled, according to Thomson Reuters data, as commodity markets boomed and companies took advantage of cheap credit.

Analysts have cut earnings projections for the likes of commodity firms Wilmar International and Noble, and offshore marine heavyweights Sembcorp Marine and Ezion Holdings.

The profitability and asset quality of banks such as top lenders DBS Group Holdings and Oversea Chinese Banking Corp have also come under pressure because of their loans to those troubled sectors.

In addition, the spillover from a money laundering scandal involving Malaysia's state fund 1MDB has weighed on the financial industry, with banks forced to spend hefty sums on compliance, which is not generating revenue. And a tax amnesty in neighbouring Indonesia has triggered large outflows from the wealth management industry.

5 things Singaporeans should do in the economic slowdown

  • The gloomy outlook in 2016 is expected to result in higher retrenchment figures, a slowdown in employment and horrible news for a whole bunch of industries.
  • NTUC has spoken: They predict that in the first quarter of 2016, 234 workers in unionised companies could be retrenched, a 31 per cent increase from the first quarter of 2015.
  • No matter how useful you think you are to your company, there's a chance your boss thinks of you, yes you, as an unnecessary cost-especially if he can just dump all your work on the guy in the next cubicle.
  • Job hopping is nothing new in Singapore, and while the employment market is still pretty robust, don't quit without another job lined up unless you're okay with the fact that it's probably going to be harder to find a new one than it was last year.
  • Employers are going to find it harder to justify hiring a new guy, so you definitely don't want to be job hunting desperately at that time.
  • If you're a business owner and haven't bothered correcting certain inefficiencies, this is the time to do it, as you could be in for some tough times.
  • While businesses across the board are likely to feel the pinch, if you're in particularly vulnerable industries like tourism and manufacturing, now is the time to see if there are more efficient, more streamlined and cheaper ways to do what you do.
  • Even if you don't find yourself unceremoniously retrenched, if your company is badly affected you can expect a smaller (or even no) bonus, as many people did during the 2008 recession, or even a pay cut.
  • This is not exactly the best time to start a designer bag collection or plan a lavish shopping trip to the factory outlets in California.
  • Everyone's investment mix is different, but if you're a stock investor who buys and holds for the long-term, this may be a good year to monitor stock prices more closely.
  • At this point, many stocks are quite heavily undervalued, and property prices are still on the decline. It's anyone guess when they'll rebound, but for now, investors should pay attention.

The problems extend beyond larger listed companies.

The head of the Association of Small and Medium Enterprises, which represents 12,000 companies, says firms are not expecting a swift recovery like that which followed the financial crisis.

"This is not '08-'09, it's not a V-shape. It's a sustained, deep-end plateau," said president Kurt Wee. "Industrial support industries or building contractors and oil and gas are very badly affected and that has a broad based effect on everything else on the ground."

Economists say the deteriorating earnings outlook raises the prospect that Singapore's economy performs worse than policymakers expect, requiring further fiscal or monetary stimulus.

The central bank has prepared investors for a protracted period of subdued growth, unexpectedly introducing forward guidance in its latest policy statement.

The government is "prepared to consider introducing a range of contingency measures, which could include broad-based as well as sector-specific measures," Lim Hng Kiang, Singapore's minister for trade and industry told parliament.

Data earlier this month showed a shock 4.1 per cent contraction in the third quarter.

To be sure, Singapore is better placed than many to weather a slowdown. It is one of the most politically stable countries in the world, with hefty reserves and a top ranking in the World Bank's ease of doing business index.

Even so, Singapore is showing signs its first recession in seven years is likely.

Entire floors at central shopping malls are empty, tourists are cutting spending and some property developers are taking on projects at a loss to keep business going.

A Mastercard survey showed Singapore posted one of the biggest drops in consumer confidence among 17 Asia-Pacific nations in the first half of 2016, notching up its lowest reading since June 2009.

Key factors dragging it down were perceptions about the quality of life, regular income and employment.

Jessica, a 39-year-old who only gave her first name and recently lost her job as an audit supervisor, can relate.

"I've definitely cut down on spending," she said as she left a job fair. "I explain to my kids that we can't buy things as often as before because of the poor economy and thankfully they understand."

No tenants, and no shoppers

  • Empty shopfronts and hoardings are not what you would expect to see at newly renovated shopping complexes, and even less so along Singapore's premier shopping street.
  • Yet that is what you will find when you walk into many of the malls in town.
  • From Orchard Road to the Marina Bay area, malls are struggling with too much retail space, as landlords scramble to attract and retain tenants.
  • This dire retail pickle has made hoardings with stock phrases "Working to serve you better" and "A new shopping experience awaits" the default decor in many malls.
  • It is a classic chicken-and-egg situation. Empty and boarded-up spaces give a poor first impression and attract few customers. Low footfall is bad news for existing tenants and fails to attract new ones.
  • At Shaw Centre, which reopened in 2014 following a massive renovation, about half of the units in the five-storey mall are behind colourful hoardings displaying contact details for leasing inquiries.
  • Next door at Pacific Plaza - once home to Tower Records and fashion brands Miu Miu and Prada - the same dismal scene beckons. Save for an Adidas Originals store, all units on the ground floor are vacant.
  • Stretches of vacant units can be seen in Claymore Connect, the former Orchard Hotel Shopping Arcade. It reopened last October after a revamp and two F&B units have already opened and shuttered in the four- storey mall.
  • Millenia Walk's management says the mall has increased occupancy by more than 20 per cent in the last year and is on track to achieve its occupancy goal of more than 90 per cent by the end of the year.
  • Potted plants are used to fill up space on level two, where there appears to be more empty units than occupied ones.
  • The entire section where Harvey Norman used to be has been cordoned off. A fitness and performance centre is slated to take over the space in October.
  • Bank executive Melissa Tan, 31, who works at one of the nearby office towers, says she goes to the mall for lunch with her colleagues. "Apart from the food, there's nothing much for me to buy or see here."
  • Over at Suntec City, a $410- million redevelopment plan, which took three years to finish, does not seem to have attracted enough tenants to fill up the vast expanse of retail space.
  • One section between Towers 2 and 3 on level three is almost a deadzone. Kiddy rides fill some of the empty spaces.
  • Vacated shops have paper crudely pasted over their signboards and some tenants seem to have left hastily, leaving behind store furniture and display shelves.
  • A store assistant at a furniture shop on that level, who wants to be known only as Mr C. Ho, 38, says he has seen tenants come and go in just the six months that he has been working there.
  • With The Centrepoint currently undergoing renovations, bright red and white hoardings can be seen on nearly every level.
  • While the boards feature happy faces and mouth- watering food pictures, they also make the place feel like a building in stasis.
  • Orchard Road has been especially hard-hit by a dip in tourism spending, which declined 6.8 per cent to $22 billion last year.
  • At Orchard Central, tenant Michael Chen, 35, says: "From levels one to four, there're so many hoardings because of renovation, it's like a dead mall."
  • The renovations are scheduled to be completed later this year. The shops on the lower levels are open for business, but the hoardings make these stores more difficult to find.
  • The many hoardings also give the impression that the entire mall is closed for renovation.
  • A salesman at a boutique on level five, who declines to be named, says: "Sales have dropped by more than 50 per cent since the renovations started."
  • "People think the mall is closed. Especially tourists. When shoppers see that level two has so many hoardings, they don't go to the higher levels."
  • Walking around Wisma Atria, the units are fully filled at basement one and there is a healthy crowd at Food Republic on level four.
  • But levels two and three are rather quiet, after department store Isetan closed last year. It is in the midst of renovations and leasing out the space.
  • From now till June 30, level one where Isetan used to occupy, is taken up by a pop-up flea market by Workshop Element (W.E.) and Togetherly.
  • Though the higher levels of the mall are mostly filled with various tenants that include fashion outlets, jewellery stores and hair and nail salons, the first level of Far East Plaza looks almost deserted.
  • While levels two through five have the odd handful of shuttered units, level one has at least 20 empty units.
  • The only busy spaces on the level are the F&B outlets which include bubble tea store Gong Cha and noodle restaurant Eat.
  • In spite of the many vacant units and stretches of hoardings, landlords contacted say their malls have a healthy occupancy rate: Mandarin Gallery says it is 94 per cent occupied while Orchard Gateway is 98 per cent occupied.
  • But tenants tell a different story. A tenant who wants to be known only as Mr Ho, 52, has a store in basement two in Orchard Gateway. "We see fewer than 10 walk-ins a day. Some days, we don't even make any sales."
  • At Mandarin Gallery, there are many empty units on levels two and three. Some have concrete flooring showing, while others are dusty. The busiest-looking areas of the mall are the rest areas, where the couches are usually fully occupied.
  • Landlords are trying various ways to fill quiet aisles, from offering space to pop-up stores to cutting rentals. Orchard Gateway and Orchard Central offer some tenants rental rebates of between 20 and 30 per cent a month.