In an interview with CNA938’s Singapore Today co-hosts Lance Alexander and Melanie Oliveiro, KPMG’s Sarah Hunter discusses the potential impact of the Ukraine crisis, as well as China’s COVID-19 lockdowns and climate change, on business expectations and inflation in Singapore and abroad in the coming months.


Lance, CNA938: Fewer manufacturers are expecting more favourable conditions in the months ahead. That's compared to the previous quarter. That's also according to the latest Economic Development Board (EDB) business sentiment survey. Service providers, on the other hand, are positive about the outlook ahead. All segments of the service industry expect business conditions to improve except for retail trade.

Melanie, CNA938: That's right, the findings come as fresh import price data was released by SingStat showing accelerating inflation. We all know this — we're going through it right now. The import price index rose 22% in March on year, accelerating from February's 16% jump. This is its fastest pace of increase in decades. So, let's make more sense of this. Hey, Sarah, welcome to Singapore Today. Manufacturers here are expressing caution but not necessarily worried about a downturn. Does that come as a surprise to you?

Sarah, KPMG: Hi, thank you for having me. It is a little bit surprising, I suppose, if you think about the global backdrop right now with the conflict in Ukraine and the move in import prices that we've seen. But I think it's worth keeping in mind that the survey would have been conducted prior to the real escalation of the COVID-19 situation and the lockdowns in China, so it probably predates some of the disruption that we might be seeing coming through from that now and into the next few months. I think it also probably predates some of the more general slowing in global growth momentum that's connected with both of those two things. So, we might see the sector underperform a bit relative to the survey over the next few months because more downside risk has emerged in the last few weeks.

Lance, CNA938: Fingers crossed that we're not going to get another variant knocking on our doors too. The report is pointing towards further supply chain disruptions as import prices start rocketing. Are we getting a clearer picture on how sticky inflation is set to be through the rest of the year?

Sarah, KPMG: Yeah, that move in import prices was obviously significant. A lot of that is coming through from fuel. Global oil prices got hit very hard, pushed up very strongly, as a result of the conflict in Ukraine. They have fallen back a bit just recently. So, there's potentially some good news coming through in the latest data when we get it for April and into May. But for other imports that are coming in, that are in that supply chain, and even final consumer products that might be coming from China and other parts of the Asia region, we're likely to see more disruption there because of what's happening in China right now. And that disruption, we know, tends to push up those prices and shipping costs. So more inflation is probably set to be embedded in the system through the rest of this year. We're unlikely to see things unwinding really quickly, at least over the next few months.

Melanie, CNA938: On the service side, the easing of COVID-19 curbs has helped keep sentiment upbeat. We're certainly feeling that in Singapore. We're all a lot happier now, but what are the key threats for the service sector going forward?

Sarah, KPMG: Absolutely. The services numbers are showing that the reopening of the local economy has been a real boost. It certainly is great to be getting out and about. In terms of the threats to it, you mentioned the risk of another variant of COVID-19. Let's hope not, but that is always a risk that's sitting in the background whilst the pandemic is still going on. Households, like everybody, are having to battle with rising prices. And when it's the price of essentials going up, not just fuel but also food that you see in the shops and utility bills, that can be challenging. You can feel a bit of a tension. And perhaps they are spending less elsewhere so that could put a damper on the sector as we go through the rest of this year. But relative to manufacturing, I think the headwinds for services are less so it should be a bit more of an optimistic outlook there.

Lance, CNA938: There's also something else that we ought to consider: climate change. Look at what's happening right now in India and Pakistan — heatwaves of over 40 to 45 degrees Celsius.

Sarah, KPMG: Absolutely. That’s a longer-term structural risk, but it's definitely there. And it's something that we have to be really cognisant of. The world economy and governments everywhere are moving in the direction of tackling climate change going forward, looking to reduce emissions and to limit the increase in temperatures. It certainly will have a drag on the global economy if we don't do something about it. When you've got temperatures that high, it's very hard to go to work. It's very hard to be productive in your job and that just naturally acts as a drag on the economy. So it’s certainly a challenge that we're all going to have to face in the coming years and decades.

Melanie, CNA938: When you look at the overall sentiment, does it give you worrying signals of a potential recession?

Sarah, KPMG: I don't think I see a recession in the numbers for Singapore just yet. But it is certainly true that globally we're going to see a slowdown in growth momentum this year. We're already seeing it come through and some of the latest data from the US, for instance, where we had a surprise contraction in their economy at the start of the year. A lot of that was coming through from the import side, so it's not necessarily as bad as fallen domestic production. But it does highlight that the economy and Europe’s might be struggling a bit, given the moves that they've seen in terms of fuel prices — in particular, of natural gas. That's definitely weighing on spending there. So certainly, global momentum is taking a hit right now which is unsurprising given those headwinds. If it escalates and becomes an even sharper slowdown, then that will spill over across Asia and into Singapore. It's a risk and it's something to be monitored. It’s not necessarily in the baseline forecast yet, but it’s something to watch out for in the coming months.

Lance, CNA938: The big question: What will it take to improve business expectations? Are we looking at more government support? Or are we looking at more global trends?

Sarah, KPMG: Yeah, I think it’s very much a global story at the moment. It’s very hard to push against what's happening overseas through domestic policy. I think it's just a period for the global economy where we've got heightened uncertainty, where it's not entirely clear how things are playing out. There's a lot of risks that are sitting to the downside and that's just a challenging environment for businesses everywhere, including in Singapore. It's a bit of a tough patch and I think we're going to be in that for a while yet, certainly through the rest of this year and going into 2023.

Melanie, CNA938: Sarah, you're talking to us from Sydney in Australia. Just a week ago, more coronavirus rules were lifted. We just wanted to know how life has been for you in the past week.

Sarah, KPMG: It's certainly getting a bit more back to normal. A few more people are coming into the office and a few more people are riding the trains. It's nice to see the city come back to life and now we're starting to even see the return of some international visitors, which is very welcome. It's good to see a little bit more normalcy. Even though it's perhaps a bit risky and a bit hard still, it's nice that we're moving in that direction.

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