Businesses here see prospects at lowest since financial crisis

Singapore

BUSINESS performance in Singapore for the three months ended September has worsened to levels not seen since the 2008 global financial crisis, as conditions, especially those overseas, take a turn for the worse.

This prompted companies to project that the economy would expand 0.5 per cent at best or contract 1.4 per cent at worst in the last three months of the year.

These results have emerged from the latest quarterly Business Times-UniSIM Business Climate Survey.

The poll, conducted in September and October, covered 179 local and foreign firms of various sizes across different economic sectors on how they fared in the third quarter of the year. It also asked what they thought business prospects would be like for the next six months ending March 2016.

"Pessimism has become more extensive and intensive in the third quarter of 2015," said the report, co-authored by Chow Kit Boey and Chan Cheong Chiam. "Furthermore, the net balance (for business prospects) of -65 per cent is the lowest since the fourth quarter of 2008, when pessimism reached a record low of -83 per cent during the global financial crisis."

Net balances of companies in three areas - sales, profits and new orders - fell sharply when compared to the same quarter a year ago.

The net balance of sales plummeted year on year by 61 per cent. This was mainly due to more companies registering poorer sales. Only 7 per cent of respondents reported higher sales. Companies in the transport and communications sector were the worst hit, with sales dropping by 73 per cent.

The Q3 fall is the 17th straight quarterly drop, meaning that this is the longest stretch of sales contraction since the survey began in the fourth quarter of 1995.

Profit-wise, respondents reported a net decrease of 55 per cent. And like sales, the drop in profits came irrespective of company size. Commerce firms were hardest hit, with a fall of 70 per cent.

Worsening global conditions weighed on demand, and new orders for respondents fell by 57 per cent.

The fall was marked across all sectors, ranging from 54 per cent for the construction sector, to 69 per cent for commerce.

The sharp drop was attributed to worsening prospects for orders from abroad. The report noted that "unlike in the previous quarter when improved overseas performance cushioned deteriorating activities in Singapore", the poor showing this time round made things worse.

"The steep slide in the net balances of Q3 2015 corresponds to another financial shock," said the report. "China devalued the yuan on Aug 11, 2015, sending shock waves across stock markets worldwide."

With new orders from overseas tapering off, pessimism among companies became more pervasive.

Companies predicted that gross domestic product (GDP) for the last quarter of this year will range from an expansion of about 0.5 per cent to a contraction of 1.4 per cent.

This would mean that GDP, which had grown 2 per cent in the first three quarters, would register growth of between 1.2 and 1.6 per cent for the full year.

The report noted that the net balance of business prospects was significantly correlated with GDP growth of the next quarter.

Official figures for Singapore's Q3 GDP performance will be released next Wednesday.

Other indices published recently seemed to support this trend.

Of the more than 400 manufacturers polled between September and October for a quarterly Economic Development Board survey, 26 per cent expect the business climate to weaken in the next six months ending March 2016 - heavily outnumbering the 10 per cent that expect it to improve.

The palpable pessimism shown in the latest BT-UniSim survey seemed to surprise analysts, who see better prospects ahead, saying that hints that the United States Federal Reserve would lift benchmark interest rates from near-zero were signs of an American economy that was growing, albeit slowly.

Jeff Ng, Asia economist at Standard Chartered, said: "What can be understood here is that the confluence and volatility of domestic and external factors has finally weighed down most of the firms here.

"But what we see is that conditions seem to be stabilising, and so long as there is no collapse in economic growth in the US or China faces a sharp slowdown, there will be cause for optimism."