THE WINTER IS HERE: BLEAK, BLACK & BAD

2016 outlook

 

“Everyone is saying everything is fine, but I defer in opinion – I don’t think so because what is there to expect? It won’t be a year of hustle and bustle – it will be a year of consolidation. As the economy is slowing down, people are playing it safe”

2015 has definitely been a very tough and challenging year. Cliché as it may sound – it is the truth – and to say otherwise would mean that we are living in a state of denial. No matter how optimistic one would like to be, the truth of the matter smacks right in one’s face.

I have been asked as to how 2016’s economic outlook will be and I can only say that winter has set in and it is going to be BLEAK, BLACK & BAD. This alliteration sums up my view of 2016 and let me explain the reasons why.

First of all, let us take a look at Malaysia’s 2015’s GDP (gross domestic product) as an indicator of economic growth. It has been sliding down since the first quarter–when it recorded 5.6 per cent for the first quarter, 4.9 percent for the second quarter and 4.7 percent for the third quarter. Private consumption growth was at 4.1 percent for the third quarter as compared to 6.4 percent in second quarter, which saw the implementation of the GST in April. This shows that many consumers are holding back on spending as GST has increased the cost of goods and services overall.

Companies are also reporting slower growth and lower profitability. PETRONAS, reported a steep loss in its net profit from RM11.1 B in second quarter to RM1.4 B for third quarter; this represents a 91 percent plunge which was most unexpected! It attributed the fall to the low oil prices and net foreign exchange loss on US dollar borrowings. The oil and gas industry which is a major contributor to the nation’s economy is already experiencing a slowdown with dwindling jobs and contracts. If PETRONAS can be so badly affected, what about other companies?

Bursa Malaysia, the local bourse experienced a decline of over 250 points from 1,863 points in  April to 1,532 points in August this year. It has now stabilized but analysts are not too optimistic on 2016’s outlook with the many external uncertainties that may drag the composite index down along with lower than expected local corporate earnings.

“I hope I am wrong – hopefully someone can prove me wrong. If it ever turns out to be ‘positive’, then to me it’s a MIRACLE!”

 

Visible Change in the Fiscal Climate

“It’s human nature…to paint a rosy picture even
when circumstances are bleak – till reality strikes!”

The retail sector has been experiencing a slowdown for the whole of 2015. If you go into any shopping mall, you see more window shoppers than customers purchasing items. A major pharmacy chain has been losing revenue for the past year and competition is so intense that price slashing is now the norm; yet consumers are not opening up their wallets! Whatever is sold is sometimes not enough to cover the increasing rental and operating costs.

Definitely, the weak ringgit is not helping at all. Businesses that trade in US dollar are badly affected with the high forex and the increasing cost is passed down the supply chain –a multiplier effect which is not welcomed at all. Families with children studying overseas need to pay more in forex conversion and at the end of the day, purse strings have to be tightened to ensure that there is enough money to sustain their children’s education.

Banks have upped their base lending rates to 6.85 percent; which means businesses and house owners have to pay more to service their loans. It is really becoming more difficult to stay afloat for the average Malaysian.

On the external side, China’s economic slowdown has affected the global economy. As the world’s second largest economy, China is the key driver of global economic growth. Any slowdown has an adverse impact on global business and we are experiencing that now. Malaysia is one of China’s key trading partner and with demand from China slowing down, our exports and economic growth will be affected.

These factors have definitely weighed us down in 2015 and I have not even mentioned the issues of 1MDB and related political bickering that accompanies it. The Government has mentioned that the drop in ringgit and weak business sentiment are not due to the 1MDB issue. Nevertheless, the inability to solve the issues surrounding it is giving Brand Malaysia a bad image and poor perception. It has also led to a weak business and market sentiment with Malaysians feeling very unsure and uncomfortable as to the outcome and how it will affect their livelihood!

“To me, it’s better to be pessimistic and cautious than to be optimistic and careless.”

A Winter of Discontent

“When things don’t seem good, then it is bad.
What then can you expect in 2016?”

With all these challenging issues that are unresolved and brought forward to 2016, how would one anticipate the New Year to turn out? There is really nothing to look forward to. Things seem BLEAK, BLACK & BAD. There is gloom and doom and this is the actual situation. Companies are downsizing or holding back annual bonuses. People are losing confidence because of the uncertainties ahead. This is the real sentiment out there. Everyone is consolidating and they do not want to spend and many cannot even afford to spend. This is worrisome!

I am a very optimistic man but in this case I have to tell it as it is. Being positive doesn’t change the market reality as we cannot control the above-mentioned factors; but moaning about the situation is not going to help either. As corporate and business leaders, we must take charge and put the life back into our business.

The 5 Cs of Business & Brand Recovery

1) Commit to a recovery plan to salvage the situation. If your brand is going through difficult times, develop a dedicated blueprint to counter the challenges and commit to it. Laying low and waiting for the bad times to go by will damage your brand more and you will find it hard to catch up when the situation improves as there will be many start-ups that will capitalize on the weak economy to build their brands. Stay true and loyal to your brand!

2) Change your brand strategies. We must be adaptable and flexible to capitalize on existing situations. There are gems in a doom and gloom situation and it is for you to be able to identify it and turn it into a revenue earner

3) Control spending and cut down on unnecessary expenditure. This will help to conserve as much revenue as possible to tie one over the cold winter but never at the expense of branding. Take this time to review the strength and weakness of your brand. Introduce initiatives to strengthen the internal brand. Engage the staff to create a stronger buy-in to the brand for them to deliver on the Brand Promise.

4) Continue to stay focused on your Brand Vision. Don’t give up hope in times of adversity. Your brand is the lifeline of your business. Care for it and you will reap due reward.

5) Carry the brand through these difficult times. It is important that you continue your branding initiatives during a business downturn. Many companies will cut costs on their branding budget, but that is suicidal as your competitors will overtake you in terms of market share. In bad times, the brand must continue to be visible and engage its customers. Think of a ‘win-win’ campaign where you can add value to customers and at the same time increase your sales revenue (simultaneously portrayed as responsible and caring brand).

I hope the above tips will help you to address the tough year ahead. Be prepared for the worst and hope for the best! Under any circumstances, no matter how good or bad, continue to brand.

“Brand today to create the brand for tomorrow.”

Identifying the ‘Tell’ of the Times

To tell the weather ahead, one has to be vigilant enough to look out for the signs… Gloomy skies and strong winds indicate impending harsh weather– and wisdom will tell us to be prepared in the best way that we can to endure the fury of Mother Nature. In the same way, there are already ‘symptoms’ of approaching economic turmoil, which we can already see today… Are we prepared to see the truth and bold enough to face the consequences?

Global Telltales
China Holds Everyone Back

•To date, China’s stock market has experienced a 40 per cent drop in value! This has caused a cataclysmic chain reaction that has put a major cramp in the world economy. With the devaluation of the Yuan, China, previously believed to be an unstoppable economic dynamo, will now instead hold everyone back. This bodes ill for Malaysia as we have strong economic ties with the nation.

Impending Global Economic Stagnation
• Japan, the world’s third largest economy is in recession. The headwinds are so strong that it may blow the Eurozone and Latin America into that direction. Another telltale sign is that growth in emerging market economies are slowing down and so is its demand. Coupled with weak demand in advanced economies, global economic growth has high possibility of stagnating.

Volatility in Global Capital Markets
• Global capital markets faced high volatility in 2015 with increased risks and fall in stock markets as their downside. This is expected to carry forward to 2016, with geopolitical issues such as terrorism and Islamic State activities adding to its risk index.

Local Telltales
• As of July 2015, tourism figures dipped 9 percent and this is projected to dip further in 2016. Chinese tourists who form the third largest arrivals to Malaysia may hold back travel plans to conserve spending or spend less when they are here. This will affect the retail and hospitality sectors.

  • Banks are imposing greater restrictions on borrowing and this will curtail the flow of funds for companies’ investment or business expansion.
  • The property market is expected to be soft or even flat in certain segments. With prices of houses getting out of reach for many first time house owners, the economic uncertainties is going to affect their purchase decision and this is not good news for property developers.
  • SMEs are complaining of slowdown in business volume. The cost of running a business is going up and cash flows are affected. As they form the backbone of our economy, they will be hardest hit if they do not have a proper plan to mitigate the challenges of the New Year.

How can all this be good? How long can we continue to be apathetic to the bitter truth of our times?

Alas, it is time for a rude awakening!
Brace yourself for the calamity of our times
– like it or not, it is headed our way…





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