BUSINESS sentiment soured in the third quarter of 2014, with pessimistic companies outnumbering sanguine ones for the first time in a year, according to the latest BT-UniSIM Business Climate Survey.
Of the 160 companies that responded to the survey in late September and mid-October, 38 per cent expect business prospects to worsen over the next six months, while 29 per cent foresee better conditions.
After weighting these responses by size and sector, the overall net balance in business prospects fell 6 points to -2 per cent. The net weighted balance is a common measure of the nature and extent of business sentiment, showing the difference between the proportion of firms that are optimistic and those that are not.
The swing back into negative territory reversed three quarters of positive business prospects net balances. In fact, Q4 2013's positive net balance of 4 per cent marked the first optimistic showing in over two years.
The downtrend in confidence in Q3 echoes findings from official surveys on business expectations, conducted around the same time. Quarterly polls by the Department of Statistics (DoS) and the Economic Development Board (EDB) showed that business optimism has waned across both the services and manufacturing sectors. And although there continue to be more optimistic firms than negative ones, the magnitude of positive sentiment has gone down.
While survey director Chow Kit Boey attributed the pessimism to turbulent events overseas - citing uncertainties from Ukraine, Ebola and the Islamic State in Iraq and Syria (ISIS) - private sector economists think companies could be tempering their expectations due to a patchy global recovery and domestic labour constraints.
Said CIMB economist Song Seng Wun: "With the IMF (International Monetary Fund) and the World Bank downgrading their global growth outlook, it's undeniable that there is uncertainty surrounding the global pace of growth - particularly in places like the eurozone and China. As for companies that are more Singapore-centric, they are still facing manpower and rising cost constraints."
UOB economist Francis Tan also noted that construction companies' poor sentiment could have pulled down the overall response.
Business expectations aside, the three other indicators tracked by the BT-UniSIM survey - sales, profits and new orders - reflected a weak improvement in business activity.
"The pick-up in business activity observed in the previous quarter continued weakly in Q3 2014. There was slightly less contraction in sales and profits while new orders virtually stagnated," said Ms Chow.
The quarterly survey's net balances, which have shown a strong correlation with GDP growth over its 19-year history, now predict that the Singapore economy will grow 2.4-2.8 per cent year-on-year in Q4, and up to 3.1 per cent for the full year.
Economists from DBS, CIMB and UOB agree that these forecasts "sound about right"; the median forecasts of private sector economists polled by Bloomberg stand at 3.1 per cent for Q4 2014 and 3.3 per cent for the full year.
Last month, the Ministry of Trade and Industry (MTI) said that, based on advance estimates, Singapore's economy grew 2.4 per cent year-on-year in Q3, similar to the 2.4 per cent growth rate shown in the second quarter. Economists polled by Bloomberg say MTI may revise this upwards to 3.2 per cent, when it releases final growth figures this month.
As for the one country that holds out the best business prospects for firms in the next 12 months, the most cited was Indonesia. China and Singapore shared second place.
Said Ms Chow: "The annual topic on countries holding the best business prospects in the next 12 months reveals declining prospects in China since 2006 and rising prospects in Indonesia. Vietnam and the United Arab Emirates (Dubai) have not been among the three most-cited countries since 2008."