As the world economy rebounds from the deep economic contraction in 2020, industrial recovery is expected to move in tandem with the global economic growth. At the same time, the Singapore economy is expected to grow by around 7% this year and 3% to 5% in 2022, according to the Ministry of Trade and Industry.

As the world reopens, it is critical for Singapore to reassert its position as a business, travel and talent hub. Hence, Singapore is forging ahead to bring back normalcy at the workplace in a safe and calibrated manner as we learn to live with the coronavirus in its endemic state. So, what are the global economic and political outlooks ahead for businesses?

Will uncertainties in markets be a stumbling block for trade and investments? What challenges and opportunities are there for businesses transacting across borders in this region and beyond as they navigate post pandemic.

Business and economic outlook for SMEs in 2022

Business owners looking to drive expansion for their SMEs in 2022 should take note of these key economic and trade developments for the year.

Despite uncertainties posed by inflationary pressures, policy changes in the U.S. and China, and the Omicron variant, business leaders in Singapore remain optimistic about 2022. According to the Singapore Business Federation’s National Business Survey 2021/2022, 87% of Singapore businesses expect the economic situation to improve or remain stable in the coming year, with most leaders focusing their upcoming efforts on digital transformation, building HR capabilities, and internationalisation. Here are 4 key global economic developments that Singapore SMEs should prepare for as they gear up for expansion in 2022.

1. The upcoming Fed normalisation

Global food, oil, and commodity prices have now far surpassed pre-COVID-19 levels, partially due to low interest rates over the past 2 years meant to stimulate the economy. In response, the U.S. Federal Reserve System (Fed) is expected to hike interest rates this year, with the first hike expected to be as early as March 2022. A total of 3 hikes per year are expected from 2022-2024 to bring the inflation rate down from over 7% to the target rate of 2.50%, but potentially more aggressive tightening measures may be needed if high inflation persists. SMEs should prepare to review their loans and finances, especially as key domestic rates like SORA tend to move in tandem with U.S. interest rates.

2. China’s stimulus policies

Recent COVID-19 lockdowns and stricter regulations on local tech companies have resulted in severely stifled consumption in China, which can be worrying for Singapore businesses as a stall in China’s economy has inevitable spill over effects in the region. The Chinese government is expected to respond by rolling out policies to cushion the slowdown, including the roll out of massive infrastructure projects and the introduction of monetary easing policies. Singapore businesses have the opportunity to capitalise on these stimulus measures to internationalise their business.

3. Global pandemic stabilisation

Promising vaccination and booster rates in Singapore and around the world give hope that populations and economies will be more resilient against the disruptions of COVID-19 this year compared to previous years. The reduction in cases requiring ICU admission also points to the possibility that the Omicron variant, while more infectious than Delta, may result in less severe symptoms. For SMEs looking to scale, this brings a light to the end of the tunnel in terms of potential reductions in border restrictions and a further re-opening of Singapore’s economy.

4. ESG enters the trade picture

Asia’s emerging economies are fuelling growth in the region. Yet, while a rising tide lifts all boats, Singapore businesses need to step up their game if they wish to maintain their status as a regional hub, especially in the face of stiff competition from cheaper markets. One way is to lead the region into the future of trade, which is strongly guided by Environmental, Social, and Governance (ESG) principles. This could mean implementing greener processes (for example, digitalisation and e-invoicing for paperless processes), practicing social responsibility (such as advocating for and protecting workers’ rights), and upholding good corporate governance.