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SMEs forecast modest growth outlook for Q4 2014 to early 2015

  • Business Services and Construction/Engineering Sectors Indicate Positive Sentiments for Growth

3 October 2014 [Singapore] – Singapore SMEs are showing signs of modest optimism for Q4 2014 to early 2015. Business Services and Construction/Engineering sectors are leading the early positive confidence.

This is the key observation 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-month forward-looking Index which measures the sentiments of SMEs.

The Overall Index for this quarter rose by 1.1 per cent to 55.5. A score above 50 indicates that SMEs have a positive outlook for their business prospects for the next six months.

The Index which measures SME sentiments from October 2014 to March 2015, 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.

Across the board, SMEs are adopting various approaches to counter balance the continuing tight domestic labour market, high operating cost and a sluggish global economy. This is an early sign of the SMEs’ adaptation and transformation, sparking initial indications of optimism for the New Year in some sectors.

Overall turnover expectations increased to 5.71 from 5.65 last quarter, led by strong outlook from the Business Services and Construction/Engineering industries. Conversely, softening global demand has affected the Commerce/Trading, Manufacturing and Transport/Storage SMEs, with these three sectors reporting lower revenue expectations in the next 6 months.

Business Services & Construction/Engineering Leading Confidence

A strong emphasis by the Government to improve productivity has strengthened sentiments in Business Services SMEs (56.5 from 54.8 last quarter). Firms in this sector are projecting more projects relating to technology applications and consultancy to fuel their profit gains (5.86) in the next 6 months.

Business Services SMEs are also anticipating business expansion (6.56) in the next two quarters, with greater access to funding (5.49) to support capital investment initiatives (5.59).

Construction/Engineering SMEs are positive despite domestic labour restraints, primarily driven by more construction works expected in the next 6 months.

With more public projects forthcoming, Construction/Engineering SMEs are expecting business expansion opportunities (6.26) to rise in the next two quarters, contributing to profit expectations (5.60). Capital investment expectations hit a high of 5.69, with investments geared at improving productivity and alleviating labour shortage.

The Transport/Storage firms are the only sector to report dampened expectations (55.0 from 56.6 last quarter). Despite expanding shipment numbers reported, the small and mid-sized players are facing increased competition by their larger compatriots where clients are demanding broader market reach, more sophisticated solutions and cost competitiveness.

Business Expansion

SMEs in the Business Services and Construction/Engineering sectors expect business expansion, fuelled by higher turnover and profit expectations. In particular, there is interest in regional expansion plans in markets such as Indonesia, with renewed confidence in the newly elected President.

Overall, business expansion remained tepid at a marginal 0.49% increase to 6.17.

Capital Investment, Access to Funding & Hiring Expectations

Overall capital investment is likely to continue in the next 6 months (5.53 from 5.49 last quarter) for all sectors except for Commerce/Trading. As hiring constraints persist, there was sustained interest in capital investment to improve productivity. Capital investment is an indicator of SMEs response to long term restructuring goals.

With access to financing hitting an overall 5-year high at 5.44, investment plans will be facilitated and realised through the availability of credit in the market.

Hiring expectations remain high with all five sectors demonstrating their desire to continue hiring at 5.62 (up from 5.37 last quarter).

“The moderate confidence led by Business Services and Construction/Engineering sectors are the first positive growth prospects to 2015,” said Ms Chen Yew Nah, managing director of DP Information Group.

“We believe that the modest growth was due to domestic constraints, and the weaker export sectors which affected Manufacturing, Commerce/Trading and Transport/Logistics. Otherwise, we had anticipated better growth expectations across the board.”

“The positive sentiment from the Business Services and Construction/Engineering sectors provides the first sign of a brighter outlook for SMEs in these sectors. However, this is not reflected in the outlook of the other sectors yet. The improved sentiment is therefore patchy. There are good signs that companies are responding to the call for restructuring. Capital investments expectations are up. We see business sentiments holding up well in the past few quarters in spite of the very tough constraints in the Singapore market. This shows that our SMEs are resilient and confident. It bodes well that many of them will be able to make a successful transition to be better and higher growth companies,” added Mr Ho Meng Kit, CEO of SBF.

Table 1: Outlook for July 2014 to December 2014 Forecast

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