Company Margins in Singapore to Come Under More Pressure

The current economic situation in Singapore is not all too rosy for households and the corporate sector. Since January 2016, the grown forecasts by analysts have been revised downwards from 2.2% to 1.8% by April 2016. There have also been concerns from international quarters with the IMF at one time sending a team to carry out an assessment.

Amidst these developments, the Monetary Authority of Singapore (MAS) has dropped another bombshell that is bound to jolt the corporate world in the country. The authority has said that company margins are expected to come under further strain as the year progresses in the background of a weakening global economy.

“Given the existing global external outlook, local companies should expect their margins to be strained. The weakness in the outlook might have been concentrated on trade related sectors but it has now to spread to other sectors,” the central bank reported.

In the latest monetary policy statement last month, the central bank surprised many analysts by easing its policy settings, a recommendation that had been suggested by an IMF team that was in the country for two weeks. MAS cited gradual increase in core inflation in Q1 2016 and a weakened economy as the reasons for this policy easing move.

The monetary authority is forecasting a modest growth of 1-3% though analysts have reiterated that 3% growth rate is only possible in 2018. This comes against the backdrop of another worrying survey from the statistics agency. The number of company closures in Singapore exceeded new opening in December 2015 for the first time since 2009. Given this situation, Kit Wei Zheng, an economist with Citigroup Inc. has warned of possible recession, which could further constrain company margins in the country.

With company margins coming under more pressure, the strain will now be felt in more areas of corporate operations including new hiring and market expansions. The fact that major Singapore trading partners including China and Japan are experiencing slow growth will also have an impact in the export industries.

With a weakening global economy firms in the country are expected to face a tougher time ahead. The labor market on the other hand is expected to go through a rough patch as companies look for cost cutting measures before the situation stabilizes.

The announcement by MAS is expected to dampen forecasts in most sectors. The strain on company margins will spread to more industries and will send jitters across the corporate world, but its expected gradual recovery in global markets will eventually stabilize the sector.

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