SINGAPORE: Companies here are bracing themselves for turbulence in 2025 after weathering a year of business re-engineering in 2024.

The moves were not by choice, but came as a result of high business costs and talent shortages that forced enterprises to put immediate growth plans on hold to focus on fortifying themselves, industry players said.

While the overall economy improved in 2024, some businesses chose to hunker down, given the global uncertainties and cost pressures, said Joanne Tan, deputy managing director for industry at Enterprise Singapore.

In this “watch-and-see” mode, however, they were nevertheless doubling down on investments in artificial intelligence (AI), digitalisation and sustainability measures to comply with global standards, she added.

There are over 300,000 small and medium enterprises (SMEs) in Singapore, accounting for 99% of enterprises here.

A Singapore Business Federation (SBF) survey noted that 7% more businesses fine-tuned their digital operational processes in 2024 compared with in 2023.

Smaller firms also made efforts to shore up resilience, innovation and productivity, said the association of small and medium enterprises (ASME).

But performance has been mixed, leaning towards “poor or neutral”, said ASME president Ang Yuit.

“High operating costs, cautious client spending and inflationary pressures weighed heavily on many SMEs, particularly in sectors like food and beverage and retail,” he added.

Singapore’s economy is forecast to grow 3.5% in 2024, better than earlier forecasts.

Official estimates, however, are weak for accommodation, retail trade, and food and beverage services.

Economists project growth to be at a “broadly similar pace” in 2025, a hint of what is to come for SMEs, which produce over 40% of Singapore’s economic output.

Ang said: “The 2025 outlook is not very optimistic, with the majority seeing a repeat of 2024 performance or weaker performance.”

US-China trade dynamics, new tariffs and the Middle East situation add uncertainty, while costs and finding workers remain difficult, he noted, adding that SMEs also face competition from regional players and technology-driven start-ups that leverage AI.

SBF chief executive Kok Ping Soon expects 2025’s agenda to be dominated by geopolitical dynamics and regional stability: “The potential for increased tariffs, trade barriers and shipping line disruptions could upset supply chains, leading to higher costs and reduced competitiveness for SMEs that engage in cross-border trade.

“Singapore’s strategic location as a trading hub may be threatened if regional conflicts escalate, potentially deterring foreign investment.” 

The positive scenario is if investors see Singapore as a safe haven, while more local companies scout opportunities overseas, he said.

SBF’s survey found that 85% of businesses engaged in the region in 2023 are showing a growing interest in Asean, beyond the American and Chinese markets.

Koh Kar Siong, group head of corporate and SME banking at DBS, projects that falling interest rates in 2025 will increase funding, while more supply sources will alleviate costs. — ANN