Lower growth momentum for SMEs for 1st half of 2015
- SMEs reflect more conservative outlook given weak market sentiment and domestic uncertainties
- Retail / F&B - New sector tracking for 2015
29 December 2014 [Singapore] – Singapore SMEs are tempering their 1H2015 outlook as they find new ways to sustain their businesses. With weaker market sentiment, an uneven global economy and existing domestic pressures, SMEs are citing a lower growth momentum and a more conservative outlook.
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 pulled back by 2.0 per cent to 54.4. A score of 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 January 2015 to June 2015, is based on some 3,600 interviews with SME owners and managers and the financial performance of SMEs. Six industry sectors are tracked – Business Services, Commerce/Trading, Construction/Engineering, Manufacturing, Retail/F&B and Transport/Storage.
SMEs are expecting some impact of recent developments in the global economic environment on the Singapore business landscape. In particular, the fall in oil prices, slowdown of the Chinese economy and market volatility reflect challenging times ahead for SMEs as well as opportunities for some.
Domestically, while SMEs cut cost and make do with lower margins to stay afloat in the midst of a national restructuring effort, there are encouraging indicators emerging. The Manufacturing sector has shown productivity gains of 2.1 per cent in Q3 2014.
“Singapore SMEs are resilient and have found ways to sustain in their current mode. However, they need to find the spark to pave the way for new growth opportunities amidst the restructuring phase and lacklustre market,” said Ms Chen Yew Nah, managing director of DP Information Group.
Overall Turnover & Profitability Expectations
While manpower constraints continue to pressure SMEs, the festive season and increased trading buoyed turnover expectations amongst the Commerce/Trading (5.67 from 5.62 last quarter) and Transport/Storage SMEs (5.66 from 5.52 last quarter). The effects of lower oil prices on these two sectors – induced higher consumption from more disposable income and lower transport costs are likely to spur increase in overall turnover expectations (5.74 from 5.71 last quarter).
With the drop in oil prices, SMEs in the Transport/Storage sector is the only sector positive about profits – the profitability expectation of this sector is expected to increase by 2.8 per cent from the last quarter in the next six months.
Construction/Engineering SMEs, on the other hand, are less optimistic about both turnover expectations (5.74 from 5.86 last quarter) and profitability expectations (5.50 from 5.60 last quarter), in view of the slowing real estate activities in the private sector and the softening of the property market.
More SMEs in the Transport/Storage and Manufacturing sectors are looking to expand their businesses in the next 6 months despite weaker market sentiment. Opportunities present themselves in regions like Indonesia and India where reforms are on-going.
Overall, business expansion expectations saw a slight decline to 6.10 from 6.17 last quarter as companies toughen up to combat external and domestic pressures.
Capital Investment & Hiring Expectations
SMEs are less optimistic about hiring (5.52 from 5.62 last quarter) amidst weaker business prospects. Despite stronger turnover and profitability expectations in the next six months, Transport/Storage SMEs are expecting to hire fewer workers (5.39 from 5.61 last quarter). This reflects the current tight labour market.
“While the economic conditions are still soft, it is prudent for SMEs to continue investing in capital appropriately for productivity improvement,” commented Ms Chen.
“Instead of deferring investment and growth plans amidst a lukewarm business outlook, SMEs should take advantage of present opportunities in order to stay ahead and seek growth in the long run.”
“As the Singapore economy continues with its restructuring and SMEs remain conservative in their business outlook uncertainties, there will be opportunities in 2015 that SMEs can tap on. For example, the decline in oil prices is expected to benefit our SMEs in general, except for those in the oil and gas and related sectors. The decline in oil prices lowers business costs and returns more spending power to consumers due to lower energy and petrol prices. This is good for many businesses as they can use the opportunity to price their goods and services more competitively.” added Mr Ho Meng Kit, CEO of SBF.
New Sector Tracked – Retail/F&B
Newly tracked this quarter is the Retail/F&B sector which contributes about 7% of Singapore’s GDP. The Retail/F&B sector plays a vital role in Singapore’s economy and the lifestyle of Singaporeans, given their extensive reach to the population and the economy. With an optimistic outlook of 54.7, the sector buoyancy may be attributed to consumer spending during the festive season.
“We look forward to bringing more insights with the addition of the Retail/F&B sector. As the economy evolves, it is important to relook at how we do things to make it more relevant and applicable to the current landscape. Tracking the Retail/F&B sector in recognition of its emergence as a key GDP contributor will allow for a better understanding and representation of the SME business outlook,” Ms Chen remarked.
Table: Outlook for 1Q15-2Q15F (January 2015 to June 2015)