Already, businesses are feeling ripple effects.
More than half of the large companies and 60 per cent of small and medium-sized enterprises (SMEs) polled by the Singapore Business Federation (SBF) last month said they have been negatively hit by the ongoing Ukraine war.
The top two areas of impact were in the form of rising business costs and supply chain disruptions.
“Businesses entered 2022 with greater optimism for recovery and growth. However, the war in Ukraine, as well as rising inflation and interest rates, have somewhat dented business outlook,” SBF’s chief executive officer Lam Yi Young said.
Watson EP Industries noted that the Russia-Ukraine conflict has raised the price of plastic resins by as much as 20 per cent, given how the price of the raw material – a byproduct of petroleum refining – is pegged to that of crude oil.
Manufacturers also continue to grapple with long lead times for electronic components. The set-up of new chip plants by global chip makers have not helped with the supply shortfall, which first emerged in 2020 due to pandemic interruptions and a boom in demand.
In some instances, lead times for components have gone up from 111 days to 400 days, Ms Seow said.
“The solution is place orders even earlier or buy at higher prices from what we call ‘stockists’ or buy more and stock up,” she added. “All this is resulting in borrowings that we have to work with our banks. The higher cost of borrowing definitely adds to our overheads.”
Another homegrown company Tocco Toscano has seen production uncertainties due to the strict COVID-19 measures in China. While its factory is located in Guangzhou, the retail brand known for its leather bags sources for raw materials from other parts of China.
“Without the materials, we can’t make our products,” said chief executive Joseph Lor. “The worse part is not knowing how long the delay will be … there’s just so much uncertainty.”
This is coming at a time when the retailer has “recovered” from the pandemic’s hit, with in-store sales back up to pre-pandemic levels as shoppers return amid a major easing of COVID-19 rules.
“April has been amazing … overall sales are up with lesser operational expenses. It’s all really good,” said Mr Lor, before adding: “At least for now.”
LESSONS FROM COVID-19
Economists have told CNA that “an outright recession looks unlikely at this juncture” but the possibility of shorter recession cycles may be something that businesses have to be prepared for.
“In the past, we’d say that a global recession occurs maybe once every 10 years but obviously, business cycles are now a lot more compressed,” said OCBC’s head of treasury and research Selena Ling.
A recession, if it happens, will have an “outsized impact” on SMEs, said Mr Mark Micallef, managing director of APAC at software maker Anaplan.
One reason is because smaller businesses do not have pricing power – the ability to raise prices without losing demand. This can “drastically” impact profit margins, especially those in the retail and food and beverage industries where margins are tight, he noted.
“COVID-19 turned business continuity planning on its head, as it forced companies around the world to rethink their operations and in many cases, embrace totally new models for work,” said Mr Micallef.
“As the recovery from the pandemic continues, forward-thinking companies’ stance will be to create and review easily accessible business continuity plans.”
In addition, businesses should look to “further develop, expand and diversify revenue sources, while remaining as efficient as possible through operations and expense management”, he added.
Echoing that, SBF’s Mr Lam said businesses should put to use the lessons learnt from the pandemic.
“The pandemic has taught our businesses many useful lessons including the need to diversify their supply chains for greater resilience,” he told CNA in an emailed response.
“SBF encourages companies to continue with their digitalisation and transformation efforts to remain competitive. With the reopening of borders, companies can also proactively seize opportunities in overseas markets.”