Less Optimistic Business Outlook for SMEs over the Next Six Months
- Most SMEs expect conservative sales and profit growth
- Increased hiring intention to improve operational capacity
1 April 2015 [Singapore] - SMEs expect their sales and profits to weaken during the next two quarters resulting in a slight dip in the level of business confidence.
According to the SBF-DP SME Index for Q2 and Q3 of 2015, the level of business confidence among Singapore SMEs fell compared to last quarter, with the Overall Index Score dipping from 54.4 to 54.0.
As a score above 50 indicates a positive sentiment, SMEs remain generally optimistic about their prospects for the next six months.
The Index is joint initiative of the Singapore Business Federation (SBF) and DP Information Group (DP Info). It is a six-month forward-looking Index which measures the sentiments of SMEs.
The dampened outlook is mainly due to the lower sales and profit expectations of SMEs.
Mr Lincoln Teo, Chief Operating Officer of DP Info said SMEs sentiments have been steady for some quarters, with no major event to generate either positive or negative sentiments.“We are seeing a period of stability as SMEs build their businesses slowly. This environment is something most SME leaders welcome after the volatility of previous years.”“While SMEs toughen up to tide through the lull period during this post-festive season, anticipation of the Budget announcement might have also resulted in some adopting a wait-and-see approach,” Mr Teo said.
This quarter, turnover expectations have fallen from an Index Score of 5.74 to 5.57. This drop is seen across all sectors. Business Services recorded the biggest drop in turnover expectations from an Index score of 5.97 to 5.63. This means Business Services leaders expect a slowdown across the entire SME sector which forms the bulk of their customer base.
The slowdown is partly seasonal and reflects lower volumes in contrast to the festive activities in Q4 and Q1. For the Commerce/Trading and Retail/F&B sectors, the lower post-festive period spending has contributed to the drop in turnover expectations.
For the Construction/Engineering companies, a softening private property market has resulted in a lower turnover outlook for the sector. The labour-intensive Manufacturing sector is facing strong competition internationally and companies are adjusting their business models to accommodate a higher labour cost, thus lowering their outlook for the next six months.
Profit expectations are also less optimistic as a result of the diminished turnover expectations for the next two quarters.
Although less optimistic in their overall outlook, Singapore SMEs remain resilient, turning to strategies to make adjustments to their cost base and defend their margins. The decline in profit expectations of 5.47 from 5.54 last quarter is almost half that of turnover expectations.
In the next few quarters, lower oil prices could have an impact on the outlook of SMEs. In some sectors such as Transport/Storage, lower oil prices should lead to lower costs, hence a more positive profit outlook. However, for some organisations such as Business Services companies supporting businesses within Singapore’s large oil and gas sector, the impact of the lower oil price may be negative.
SMEs’ hiring expectations increased to 5.70 from 5.52 last quarter, with the tight labour market continuing to exert hiring pressure to fill open positions.
There has been a corresponding decline in capital investment expectations which means that SMEs are slowing down their investment in machinery, equipment and automation and seeking to hire more staff to increase their operational capacity.
“The sentiments continue to reflect the resilience of our SMEs in the face of current economic restructuring. The road ahead is challenging, but I believe our SMEs will come through stronger, helped by measures introduced in the recent Budget announcements to boost skills training, innovation, internationalisation and collaboration. SBF will work with the various trade associations and chambers to galvanise the business community and provide feedback to government on implementation of the budget measures”, added Mr Ho Meng Kit, CEO of SBF