Optimism on the rise as SMEs expect their best sales and profit result in three years
- Signs that the SME recovery is gaining speed
The SBF-DP SME Index (the Index) increased from 51.2 to 51.8 this quarter, indicating growing optimism among SMEs. The Index is based on a survey of more than 3,600 SMEs during January and February 2018.
The Index measures the business sentiment of SMEs for the next six months (April to September) and is a joint initiative of the Singapore Business Federation (SBF) and DP Information Group (DP Info), part of the Experian Group of companies.
According to the Index, SMEs expect the next two quarters to deliver their strongest sales and profit results since 2015.
Figure 1: Outlook for 2Q18 – 3Q18F (April to September)
Industry Outlook Analysis
Sentiment improved across all five of the six industries, with the Index Score for Business Services remaining unchanged. All six industries recorded scores above 50.0 indicating a positive view of the coming six months.
Business Services continues to be the most optimistic with an Overall Index Score of 52.1. They are closely followed by the Commerce/Trading sector with a score of 52.0, and the Transport / Storage Sector with a score of 51.9.
The Business Services sector provides support to other industries and includes activities such as management consultancy, training, and supporting professional advisories. The improved outlook among the other sectors contributes to the high Index Score of the Business Services sector.
Commerce/Trading and Transport/Storage are both sectors linked to global trade. Fifteen months ago, both these sectors had negative Index Scores (Commerce/Trading 49.6; Transport/Storage 49.2) and expected their operations to contract. A stronger global economy together with improved trading conditions have seen a turnaround in the fortunes of both sectors.
Turnover and Profit Analysis
In addition to an Overall Outlook Score, the Index includes a score for Turnover Expectations and Profit Expectations, measured on a scale of 1 to 10.
According to the Index, the outlook for turnover and profit is at its highest point in three years.
All six industries expect their turnover to rise during the next six months, lifting the Turnover Expectations score to 5.38 (on a scale of 1 to 10) - the highest score since third quarter of 2015. As many SMEs are focused on the domestic market, an expected increase in sales strongly suggests a growing confidence in the Singapore economy amongst the companies surveyed.
The increased turnover is expected to translate into higher profits. As a result, the Profitability Expectations score rose to 5.28, with every sector anticipating an improvement in their bottom line. This is the best Profitability Expectations Score since the second quarter of 2015.
Comments from SBF
“It is good to see that the sentiment of our smaller companies continue to improve broadly. The positive sentiments of the latest SME Index will be reinforced by a facilitative set of Budget 2018 measures announced in February to foster a more vibrant and innovative economy. In a recent poll of our members, 48% of respondents indicated that the Budget was useful in helping their companies deepen capabilities and transform. Notwithstanding the optimism amongst our SMEs and a supportive domestic policy environment, we are mindful that recent trade disputes between US and China could affect our growth path. This is a risk which we will need to monitor carefully,” said Mr Ho Meng Kit, CEO Singapore Business Federation.
Comments from DP Info
Mr James Gothard, General Manager, Credit Services & Strategy SEA of Experian, the parent company of DP Info said increased trade activity, as well as a growing domestic economy, are combining to lift the spirits of Singapore’s SMEs.
“The recovery among SMEs is gaining speed. SMEs are emerging from a very tough period where they struggled with slow GDP growth, weak global trade a tight labour market.”
“Many SMEs have adjusted their business models, finding greater efficiencies and productivity through investments in technology, or by focussing on aspects of their business with the most potential.”
“We are now seeing signs of a recovery in the fortunes of SMEs. They expect their businesses to expand during the next six months giving them confidence to increase their investment in technology and equipment,” Mr Gothard said.
Q2-Q3 2018 Index