Singapore faces strong economic headwinds this year as firms grapple with both the weak global economy and the increasingly urgent need to restructure, Finance Minister Heng Swee Keat said yesterday.
He said he is aware that business conditions are "difficult and uncertain", with many firms facing depressed revenue growth, rising manpower costs and tighter financing.
Still, a few bright spots are evident amid overall subdued prospects. Some sectors have remained resilient despite the slowdown, and Singapore is at the centre of a rapidly growing region which offers rich opportunities.
Mr Heng painted a muted picture of the economic outlook in his maiden Budget speech yesterday.
He noted that the pace of global recovery has been uneven - the United States economy has picked up pace, but Europe and Japan are likely to record only modest growth.
Closer to home, any setbacks that China faces in its transition towards a more stable growth path might create financial market volatility.
This means that Singapore's export-dependent sectors such as manufacturing will continue to be hit by lacklustre global demand, said Mr Heng.
The sharp slide in oil and other commodity prices is affecting the marine and offshore industry, while weak global demand in electronics will spill over into related clusters like precision engineering.
"Workers are anxious as retrenchment has increased, including among professionals," he added.
Even as Singapore grapples with this cyclical slowdown, the country has to deal with structural challenges such as shifting demographics, the need to raise productivity, technological disruptions in various sectors and changing regional trade patterns.
"All these changes pose intense challenges for our businesses, which will have to succeed in a more competitive environment while contending with tighter labour constraints.
"The need to restructure is both urgent and critical."
While the overall conditions are difficult, however, Mr Heng urged companies and workers not to be "overly pessimistic".
The economy is forecast to grow by between 1 per cent and 3 per cent this year, comparable with last year's 2 per cent expansion.
Singapore's business landscape is varied and there are "pockets of growth and resilience", he noted.
For instance, the medical technology and chemicals sectors are growing, while exports of services such as tourism, financial services and consultancy are benefiting from regional demand.
There are also growing opportunities in the region, as Singapore is "in the centre of the Asian growth story" - China, India and Asean are expected to grow at 6.3 per cent per year over the next five years, accounting for about one-third of global growth.
Singapore is well placed to benefit from technological changes, given its investments in education and research.
"We also started restructuring early and our firms, including SMEs, are embarking on change... Singapore is regarded as a highly connected, trusted node," he said.
Chia Yan Min