Singapore SMEs sentiments remain mixed despite global economic recovery
Companies linked to international trade more optimistic than those with a domestic focus
22 April 2014 [Singapore] – SMEs in industries linked to the international economy are optimistic about their prospects, while those focused on the domestic economy have mixed sentiments.
This is the key finding of the latest SBF-DP SME Index, a joint initiative of the Singapore Business Federation (SBF) and DP Information Group (DP Info). It is a six months forward-looking Index which measures the sentiments of SMEs.
The Index tracks SME sentiments for April to September 2014 and is based on 3,000 interviews with SME owners and managers, and the financial performance of SMEs. Five industry sectors are tracked - Business Services, Commerce/Trading, Construction/Engineering, Manufacturing, and Transport/Storage.
Manufacturing (54.9) and the Transport/Storage (54.3) SMEs are the only two industries that are more optimistic about their overall performance for the next six months.
They are also the only two sectors which are more positive about both their turnover and profits. The turnover score for Manufacturing increased from 5.55 to 5.62, while the profitability score increased from 5.32 to 5.45. For Transport/Storage, the turnover score increased from 5.47 to 5.51, while the profitability score increased from 5.36 to 5.43.
These two industries are linked to the performance of the world economy and global trade growth which is predicted by the World Trade Organisation to grow by 4.7 per cent in 2014 and 5.3 per cent in 2015 .
The other three sectors - Business Services (54.9), Commerce/Trading (55.2), and Construction/Engineering (54.4) - are all less optimistic than three months ago, as sales and growth are expected to slow or remain static.
Commerce/Trading SMEs, another industry tightly linked to the global economy, has the highest overall Index score of any industry. Their level of optimism has dipped slightly compared to last quarter, which may reflect the impact of a stronger Singapore Dollar which hit a three month high at the end of March.
Business/Services and Construction/Engineering are industries which are more reliant on the strength of the domestic economy. Their outlook is affected by local constraints, such manpower regulations and rising costs.
Ms Chen Yew Nah, Managing Director of DP Info said "SMEs have mixed sentiments about their prospects for the next two quarters. SMEs linked to the global marketplace are becoming more optimistic while those linked to the domestic economy are tempering their outlook."
"Singapore is one of the most open economies in the world, so our SMEs will benefit as trade growth picks up this year and during 2015."
"Many SMEs have been focussed on internal challenges such as improving their productivity. That's why we have seen Capital Expenditure of SMEs trending up during the last two years."
"It is now a good time for SMEs to pursue international expansion as it presents the best prospects for long-term growth. Companies linked to the global economy should do well in the coming quarters," Ms Chen said.
Mr Ho Meng Kit, CEO of Singapore Business Federation, pointed out that not all SMEs are reaping the benefits of the improving global outlook. Many, particularly those in domestic-oriented sectors are still hampered by the on-going restructuring and manpower crunch. It remains to be seen whether sentiments will turn more positive in subsequent quarters".
"We urge SMEs to make a concerted effort to pursue growth by tapping into the recent Budget measures which provides support for innovation, financing and internationalisation" he added.
Overall Index ScoreThe Overall Index for this quarter fell by 1.1 points to 54.4. A score above 50 per cent indicates that SMEs have a positive outlook for their business prospects for the next six months. So SMEs while remaining positive in their overall outlook are slightly less optimistic than last quarter.
Table 1: April 2014 to September 2014 Forecast