Business sentiment continues to improve in Q3 2015 for second consecutive quarter

BUSINESS confidence in Singapore continues to improve for the second consecutive quarter in Q3 2015 after experiencing a slight rebound in this quarter.

According to Singapore Commercial Credit Bureau's (SCCB) latest quarterly Business Optimism Index (BOI) study, BOI rose from nine percentage points in Q2 2015 to 14.6 percentage points in Q3 2015.

On a year-on-year basis, BOI fell marginally from 14.65 percentage points in Q3 2014 to 14.60 percentage points in Q3 2015.

For Q3 2015, similar to the year-ago period, all six indicators - volume of sales, net profit, selling price, new orders, inventory as well as employment - are in the expansionary region. This is a marked improvement from Q2 2015 when only four of six indicators were expansionary.

According to SCCB, volume of sales has experienced a significant upswing in Q3 2015. Overall volume of sales rose from 15 percentage points in Q2 2015 to 27.86 percentage points in Q3 2015.

Net profits have, however, moved in the opposite direction, from 23.57 percentage points in Q2 2015 to 14.29 percentage points in Q3 2015.

On a year-on-year basis, both indicators fell, with volume of sales slipping from 29 percentage points in Q3 2014 and net profits tumbling from 25 percentage points in Q3 2014.

Selling prices continued to fall for the second consecutive quarter, from 2.86 percentage points in Q2 2015 to 2.14 percentage points in Q3 2015. On a year-on-year basis, selling prices fell from six percentage points in Q3 2014.

Meanwhile, both inventory and employment levels have increased significantly for Q3 2015. Inventory levels rebounded strongly from negative-3.57 percentage points in Q2 2015 to 12.86 percentage points in Q3 2015. On a year-on-year basis, inventory levels also rose significantly from three percentage points in Q3 2014.

Hiring sentiments remained relatively upbeat, increasing from 10 percentage points in Q2 2015 and Q3 2014 to 15.71 percentage points in Q3 2015.

Following three consecutive quarters of decline in new orders, manufacturers have anticipated new orders to pick up in Q3 2015. According to SCCB, new orders are expected to spring back into the expansionary region from negative-8.7 percentage points in Q2 2015 to 15.39 percentage points in Q3 2015.

SCCB conducts its business expectations surveys every quarter. Each quarter, 200 business owners and senior executives representing major industry sectors across Singapore are asked if they expect increases, decreases or no changes in the six business indicators for the upcoming quarter.

For Q3 2015, the construction and services sectors emerged as the most optimistic sectors with five business indicators in the expansionary region.

In Q2 2015, the construction sector had only two of five business indicators in the expansionary region.

Supported by a pick-up in both private sector construction activities and robust demand for public institutional and building developments, the construction sector is anticipating a relatively optimistic quarter ahead, said SCCB.

Volume of sales within the sector is expected to increase from zero percentage point in Q2 2015 to 36.36 percentage points in Q3 2015. Net profits are also expected to bounce from the contractionary region of negative-9.09 percentage points to 54.55 percentage points in Q3 2015.

The sector is also anticipating an increase in hiring from 18.18 percentage points in Q2 2015 to 45.46 percentage points in Q3 2015.

Riding on the back of higher receipts in the information and communications and business services subsectors, the service industry is anticipating a relatively upbeat quarter, added SCCB.

Volume of sales within the sector is expected to climb from 21.43 percentage points in Q2 2015 to 30.95 percentage points in Q3 2015. However, net profits are expected to experience a marked decline from 33.93 percentage points in Q2 2015 to 19.05 percentage points in Q3 2015. The weaker showing in net profits is attributed to the lacklustre performance in the accommodation and food services sub-sector, decline in tourist arrivals as well as a contraction in consumer-related personal and recreational services, said SCCB.

Hiring sentiments within the sector remain relatively upbeat as it inches up from 16.07 percentage points in Q2 2015 to 16.67 percentage points in Q3 2015.

Driven by growth within the banking cluster, the finance sector emerged as the third most optimistic sector, with four business indicators in the expansionary region.

Despite the optimism, volume of sales within the sector is expected to plunge from 50 percentage points in Q2 2015 to 33.33 percentage points in Q3 2015. Net profits have also similarly moderated downwards from 66.67 percentage points to 16.67 percentage points over the same period. This could be due to a deceleration in demand for corporate bank loans and tepid growth in the fund management industry, SCCB said.

Employee levels within the sector are expected to increase from 16.67 percentage points in Q2 2015 to 25 percentage points in Q3 2015.

On the other end of the spectrum, the mining sector has emerged as the least optimistic sector for Q3 2015, with none of the business indicators in the expansionary region. The mining sector is anticipating no change in status in volume of sales, net profits and employee size, while both selling prices and inventory levels are expected to decline to negative-20 percentage points respectively.

Overall sentiments within the local mining sector have dampened owing to the downturn in global commodities and slump in metal prices, of which local mining firms are susceptible given its heavy reliance on business from the region and beyond, SCCB said.

SCCB's CEO Audrey Chia commented that as a whole, business sentiments have improved markedly in Q3 2015 following the previous quarter's rebound from the near-contractionary BOI reading seen in Q1 2015. She noted that for the first time in three quarters, the BOI reading has risen above the 10 percentage point mark.

"However, there is still a sense of cautious optimism for Q3. While sales are projected to increase in anticipation of a rise in demand, profit margins have remained constrained by upward cost pressures and sustained moderation in selling prices over the past year," she added.

"It is one thing for firms to be effective in generating sales and quite another for firms to be achieving optimal operating efficiencies and keeping a healthy bottomline. Hence, it would still be premature to tell if the local economy is poised for a sustained optimism for the rest of the year."