Jobs, businesses unlikely to fall off cliff when government aid ends
Extension and timing of payouts, coupled with transmission lag, should ease transition.
Government support and relief schemes have seen companies big and small through the worst of the pandemic's impact for much of this year.
But as these measures taper off into 2021, one worry is whether firms are strong enough to go it alone - or whether retrenchments and cessations were only delayed rather than avoided, and may now occur with a vengeance.
A sharp cliff effect, at least, should not manifest. The fiscal impact of government support will remain large in the new year "because of the extension and timing of payouts, coupled with transmission lags", said Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye.
Measures such as the Jobs Support Scheme (JSS) wage subsidies have been extended "to 'smoothen' the policy cliff" into 2021, as Citi economist Kit Wei Zheng put it.
Yet they will ultimately still expire. The final JSS payouts, for instance, will arrive in either March 2021 - for wages paid up till December this year - or June 2021, depending on the industry.
Business cessations have not risen noticeably in 2020, despite the pandemic. Might this change when the cushion of support is withdrawn? Not necessarily, say economists.
"We are not expecting a spike in business cessations or retrenchments with the ending or tapering of the job support schemes," said the Maybank analysts.
Sectors such as financial and infocomm services, where the JSS ends earlier, "are growing at a healthy pace and no longer need the job support payouts", they said.
If anything, business formation is up, and some sectors are hiring again amid economic reopening, they added.
"We think employment growth will likely turn positive by the first quarter of 2021, although the number of jobs created may still be modest compared to the jobs destroyed during the Q2 and Q3 of this year."
For thriving industries such as electronics, bio-medical and e-commerce, the end of the JSS "will not be a cause of concern... and will unlikely lead to retrenchment," said UOB senior economist Alvin Liew.
It helps that the timeline of tapering off support was given in advance, so firms could plan accordingly, said Association of Small and Medium Enterprises president Kurt Wee.
He believes that while some firms have cut their losses, those which are still operating have already gone lean and are managing costs carefully.
"They are in a position to prepare themselves and hopefully they will be able to ride the recovery," said Mr Wee.
Grant Thornton, head of taxation and Singapore practice leader David Sandison, said that while many ailing firms will "inevitably collapse" as a result of the extended restrictions and loss of the JSS support, many are also prevailing and emerging almost stronger than before.
"If the local F&B industry is any bellwether, businesses with strong brands, deep pockets, and luck on their side, are surviving and operating at peak capacity," he added.
The most cessations will likely come from the higher JSS tiers, which get the most support for the longest duration and "were identified as most at risk for a reason", he said. These include sectors such as aviation, tourism, and the built environment.
Mr Liew similarly identifies tourism and travel-related industries as those facing the highest risk of cessation if targeted relief measures are not extended beyond the second half of 2021, given that tourism is not expected to recover till then.
Another possible trigger for cessations is the end of temporary relief from the inability to perform contractual obligations due to Covid-19.
The relief periods for some contract types have already ended, while those for other contracts will end at various points in the coming months.
For the smallest firms, the new Re-Align Framework will provide a six-week window - from Jan 15 till Feb 26 - in which to renegotiate certain contracts, or exit without penalty.
Clifford Chance partner Shaun Langhorne and Clifford Chance Asia partner Paul Sandosham expect parties to take this change, but note that although early termination penalties will not apply, firms will remain liable for outstanding obligations.
"We expect there to be disputes in this space if no resolution can be reached. This could lead to a spike in legal proceedings where businesses seek to bring claims against their counterparties for unperformed outstanding obligations," they said.
"As the legislative protective measures are gradually eased, and the equivalent regulatory concessions for bank lenders also fall away, we expect lenders to be laser focused on managing any potential defaults and distress."
As government aid and moratoriums on enforcement litigation both come to an end, "rental defaults and retrenchments are the first and most obvious areas of economic fallout", said TSMP Law Corporation joint managing partner Stefanie Yuen Thio.
As for actual cessations, however, she said that depends on how reopening goes. "If Singapore is unable to open up more fully soon, we will see businesses begin to default more generally and go into liquidation," she said.
The Re-Align Framework does provide an opportunity for a clean exit, and there might be more firms winding up as a result, said Mr Wee.
"There will be a segment of businesses that are still hanging by a thread, that with the Re-Align Framework... may choose to rationalise themselves so the ecosystem can redeploy resources and manpower," he said.
But he believes that those which decide to keep going "will be able to ride the recovery". As Singapore approaches Phase Three of reopening, which could last a year or more, firms have been adjusting, he added.
"There are plenty of enterprises that have been pivoting from their original models to new models, or they have supplemented their original models with supplementary businesses, new revenue activities," said Mr Wee.
The "new order" of digital or distanced processes and interactions is expected to persist. Mr Wee said businesses have already been adapting to it.
Rather than closing down, firms may bide their time. Firms in the worst-hit sectors "may wait and lie dormant until their businesses can be reopened", said the Maybank analysts. "Surviving firms will benefit from the pent-up demand and consolidation of their industries," they said.
"Many firms may pivot out of certain industries - for a period," said Mr Sandison. "In time, if the industry does not disperse, they, or others like them, will be back. This is a dynamic, not a static, situation."
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