According to the World Bank, a global recession in 2023 is more likely than ever, despite rising interest rates and soaring living expenses worldwide. The current economic trends indicate that many businesses will be affected in the new year, with Singapore and Thailand most likely to feel the pinch first if the United States enters a recession.
However, this does not mean that the positive Southeast Asia business trends that carried many startups through the pandemic will disappear completely. Many businesses believe that implementing technological solutions can contribute to economic resilience, boost businesses’ productivity, and generate more revenue.
How can startups and SMEs in Southeast Asia prepare for the top challenges in 2023
In fact, in a survey conducted by Business Times, more than 50 percent of business owners and executives said that if a recession comes, they know what to expect and how to prepare for any potential disruptions having gone through similar experiences in the past.
Impacts of a global recession in 2023 in Southeast Asia
Despite growing indications that the worst of inflation may be over, for now, fund managers around the world are more concerned that a recession could occur within the next 12 months. The possibility that prices will continue to rise even as the economy slows down. Some contributing factors leading to a global recession include high inflation, worsening geopolitical situations between Russia and Ukraine, rising interest rates by central banks, and China’s strict zero-COVID policy lockdowns.
The tug-of-war between inflation and recession continues in the United States as the Federal Reserve maintains its aggressive position on interest rate hikes. The American economy witnessed two consecutive quarters of negative growth in early 2022, considered by some as a “technical” recession. Unfortunately, Asia is unlikely to escape the effects of a US recession untouched, with some ASEAN nations expected to feel the impact more than others.
Indications show that one of the first countries in the region affected by the US recession will be Singapore. The city state is considered more vulnerable than its regional neighbours because of its export dependency. Due to Singapore’s export-oriented economy, the country’s GDP growth has been “historically more connected” with US economic cycles. It has a small domestic market and relies significantly on trade services for economic growth, encompassing shipping and cargo operations.
Thailand will also be affected. The nation’s economic growth heavily depends on tourism, with tourist spending amounting to around 11% of Thailand’s GDP in 2019. According to the World Bank, the country received approximately 40 million visitors that year and generated more than US $60 billion in revenue. According to Reuters, only approximately 428 thousand international tourists visited the country in 2021, and its GDP developed by only 1.5%, making it one of the slowest in Southeast Asia.
Indonesia and the Philippines, on the other hand, would likely be less affected by the US recession because of their “domestically-oriented economies”. These two countries have been better protected from declining foreign demand and the US recession, and both economies expanded in 2008/09 despite the global financial crisis. During the 2008-2009 global financial crisis, Indonesia and the Philippines were only marginally affected and weathered the storm much more robustly than some of their neighbours.
Survival of the agile: Striding towards a resilient future
With news of the global recession on the horizon, businesses are now preparing to strengthen their defences to avoid any long-term losses. Enterprises must maintain and keep up-to-date equipment, whether in the form of technology or the actual office setting, as this can help prevent expensive repairs during downtime. They must also take advantage of possibilities to contact clients for assistance and revenue-generating opportunities.
Small firms might lose hundreds of dollars for every minute of downtime as workforce productivity reduces when machinery or office equipment fails. Many business owners report being interrupted while working on crucial tasks due to technological problems.
Another cost-cutting strategy businesses can employ is to consolidate tech stacks and reduce the number of service providers. A knock-on effect of consolidating a company’s IT stack is the simplification and improvement of departmental operations. In addition, it decreases the administration costs and fees that firms pay to various providers.
The employee experience is another factor many companies must consider when preparing for the downturn. Recognising the difficulties that staff may encounter when learning new software or if things are being simplified, taking into account their prior usage of diverse applications is vital. By striving to ensure a seamless remote working experience and offering work-from-home options, companies may be able to retain their workforce despite a continuing talent crunch in the region.
It is reassuring that many ASEAN firms have the necessary insights and understanding to take precautions against a recession in 2023. The majority can work towards bucking the economic trends startups in other parts of the world are likely to witness and have the opportunity to further reinforce their technical defences by taking mitigating actions.
The Southeast Asia business trends in tech-related sectors still show great potential despite the impending global economic disaster. In addition, as more startups explore the tech sector and create technological innovations, they can continue to improve and increase their resilience against recession.