KPMG Insights on Building Business Resilience: Panel Session Summary

2024 has been a challenging year for business as geopolitical and economic complexities have weighed on operations and strategic planning. Issues facing the world’s largest economy have played a major role, since US interest rates were until recently higher than at any time since 2001, and the country faces a tightly contested presidential election. 

Regardless of who wins that contest, a shifting global trade, taxation and legislative landscape, and the impact on global growth of the US economy, will continue to present challenges and opportunities for firms operating in the US, which must continuously update their strategies to anticipate global shifts in economic sentiment and policy. With the right input, firms can better adapt to legislative changes in key markets, or capitalise on tax credit opportunities – particularly in areas like renewable energy and green technology. 

To explore these subjects, KPMG in Singapore and the American Chamber of Commerce in Singapore organised a panel discussion on 11 October 2024 on the current and future state of the US economy, global volatility and how businesses can be resilient in the face of change. The guests included senior executives from companies operating in Singapore and the US, and the speakers were Ben Shoesmith, Senior Economist, KPMG in the US, and Nicole Li, Principal Advisor, US Corporate Tax, KPMG in Singapore.

The outcome of the US presidential election, where global trade is a key campaign issue, will have implications for Singapore and other countries in Asia and beyond. That is little surprise: The US accounts for one quarter of global GDP and is the world’s biggest importer, making it a crucial trading partner for Asia in general and for Singapore in particular.

Consequently, businesses worldwide are waiting to see how future policies may affect them. This is true for the US too. A KPMG US CEO Outlook survey in March found 62 percent of CEOs would make no significant investment decisions, like major capital expenditures and M&A activities, until after the election. At that point, in conjunction with lower interest rates, vast amounts of locked-up investment are likely to be released, said Ben Shoesmith, Senior Economist, KPMG in the US, which should help boost the momentum of the gradually improving global economy.

As Shoesmith noted, the US economy’s resilience gives further reason for optimism – though not for complacency, he warned. Positive aspects include a solid labour market, real wage growth and a rise in consumer spending. Additionally, inflation is cooling – now approaching the Federal Reserve’s 2 percent target – with goods inflation near pre-pandemic levels.

Rising prices for services, on the other hand, are being driven mainly by insurance premiums, home rentals and wage growth. The lagged effects of monetary policy, which can take between 12 and 24 months to be fully realized, means consumer and other spending may still feel the impact of the last rate hike in July 2023 for a few more quarters. 

While the US economy will continue to have a major influence on Singaporean firms’ strategies, other factors are also crucial for them to keep in mind. 

Among these, said Nicole Li, Principal Advisor, US Corporate Tax, KPMG in Singapore, is the variety of rebates and incentives that the US and other nations offer to encourage local and foreign companies to help them achieve their goals – particularly as regards renewable energy and green technology.

“Many energy sectors are in high demand [and] the technology sector is also in high demand. It might not take a lot of cost and effort to plan your way around it, and to benefit from the many exemptions and other incentives,” Li said.

Planning around potential legislative changes is certainly an important aspect to consider. In Li’s view, companies would do well to stay ahead of such changes in the US and other markets relevant to their growth strategies. “With the right help, they can get onto the front foot so as to benefit from the variety of scenarios open to them with better knowledge.” 

Both speakers also highlighted the reality that, in a world where international trade is becoming increasingly risky, understanding the numbers beyond the headlines is crucial to maintain confidence and plan effectively. The decline in the US growth rate from 3.4 percent in Q4 2023 to 1.6 percent in Q1 2024 provides a useful example.

“That is a huge drop,” said Shoesmith. “But if you look beyond the headlines, you would see it was the weakness in consumer spending in the first quarter that triggered widespread discounting and a resurgence in spending starting in the spring and summer. You might then form a different picture and adopt a different strategy.”

Despite the positive factors buoying the US economy, Shoesmith expects growth in 2025 to slow. However, he said, the overall picture is far from gloomy. The growth rate since 2010 has hovered around 2.4 percent, yet over the past four quarters it has been around 3 percent, which is “a fantastic performance”.

“We think 2024 is going to experience a slight drop from 2023 to 2.7 percent,” he said. “Growth in 2025 will decelerate further to 1.9 percent before edging up to 2 percent in 2026.”

When it comes to rates, Shoesmith said the 50-basis-point reduction announced by the Fed in September will likely be followed by further modest cuts this year and into 2025, settling somewhere between 2.75 percent and 3 percent in 2026.

And although the US’s national debt remains an issue, Shoesmith noted the annual budget deficit is expected to be relatively flat as a percentage of GDP, based on the current laws in place, despite its rise in dollar terms. One factor helping to make the level of debt somewhat sustainable is that US Treasuries are the most liquid asset sought by investors worldwide; another is that the dollar remains the world’s reserve currency and is the currency in which commodities are priced. 

While the US election and its economic performance will continue to influence business decisions, the speakers said, there are many other potential risks that firms should still seek to address. Conflicts and natural catastrophes can have a far-reaching impact on supply chains, markets, sanctions and the overall cost of doing business.  

For these reasons and others, many firms are investing to improve the resilience of their supply chains through diversification and greater flexibility. 

“It is expensive to relocate your manufacturing facilities, find new trade routes. It takes money and it takes a lot of time,” said Shoesmith of this pragmatic approach. “That is a short-term headwind, but the long-term benefit is a lot more built-in flexibility to absorb whatever volatility that comes along.” 

Another risk that has received media attention is the fracturing of world trade, with its potential to bifurcate the trading system. Although Shoesmith believes the realignment of trade may not go that far, this risk may increase in response to potential new tariffs, restrictions and other trade policies – with countries and territories finding new ways to trade with each other.  

A final consideration, speakers told the audience, is the risk of cyberattacks. The KPMG CEO Outlook 2024 by KPMG this year found managers view cyber risk as a major concern – ranking it ahead of geopolitical risk due to the rising frequency of attacks. Economic losses due to cyberattacks are estimated to reach up to US$23 trillion by 2027, with KPMG in the US’ Security Operations Center Survey 2024 calculating global losses to be nearly US$10 trillion this year. However, as Shoesmith noted, insurance coverage against cyber threats can provide some peace of mind, and “the cost is minuscule compared to the losses sustained when the attack actually occurs.”  

Ultimately, attendees heard, that is simply one step among many that businesses can and should take to boost their resilience in the face of upcoming volatility – whether that is caused by the US election, geopolitics or climate change events. In a world of few certainties, it is the firms that boost their resilience, prepare for uncertainties, and take advantage of the variety of tax incentives and legislative changes that continue to rise, that are more likely to adapt, survive and thrive.