SINGAPORE'S economic growth for the first half of 2016 might come in at below 2 per cent, as firms here continue to count on China for their sales performances, a survey has shown.
But even as companies continue to expect weak economic activity in the months ahead, their softening pessimism for the days ahead lead some economists to predict a bottoming-out of the anaemic growth.
Calculations based on reported net balances of 190 firms that responded to the latest quarterly Business Times-UniSIM Business Climate survey showed that Singapore's economic growth for the quarter ending June 30, 2016 will not change much from growth in previous quarters.
The government's flash estimates put Q1 growth at 1.8 per cent year-on-year, unchanged from the preceding two quarters. Updated estimates will be released no later than May 26.
The survey's co-authors Chow Kit Boey and Chan Cheong Chiam wrote: "From the regression results of the lagged net balances, the predictions are that the Singapore economy could likely expand by 1.6 to 2.1 per cent in Q2 2016."
Another calculation based on firms' business prospects puts growth at -0.28 per cent and after adjusting for errors, predicts Q2 growth to come in at 1.8 per cent.
"Apparently Singapore will continue to grow below 2 per cent in the first half of the year," the authors added.
The government expects full-year growth at between 1 and 3 per cent.
The latest results of the survey, now in its 20th year, are based on firms' Q1 performances in sales, profits and orders.
The firms were polled from mid-March to mid-April, and included domestic and foreign firms of different sizes across a range of industries.
The Q1 results did not paint a pretty picture.
Net weighted balance, or the difference between the proportion of firms that saw better results and those that saw worse, for sales was at -51 per cent - an 8-point slide from Q4 2015.
For profits, this was also at -51 per cent, or a fall of 10 points.
For orders, this was at -50 per cent, a 12-point drop.
Taken together, these Q1 2016 results extend the current contraction phase in sales into its 19th quarter. This phase is the fourth and the longest in the survey's history.
These Q1 results are also the second worst in the current phase, as markets were shaken by China's economic instability and falling oil and commodity prices early this year.
Results were at their lowest in Q3 2015, when China devalued the yuan.
These are signs that the current contraction phase may be hitting the bottom soon, wrote the survey's co-authors.
"If recent signs of improved activities in China continue, and barring any major turbulence, pessimism among Singapore firms could diminish further and the prolonged contraction could reach a trough by the second half of the year," they said.
As the contraction phase wears on, firms are seeing a slight glimmer of hope in the days ahead. Business prospects from April to September was the only indicator which registered an improvement in Q1 2016.
Though still overwhelmingly pessimistic, the indicator's net weighted balance, or the difference between proportion of optimistic and pessimistic firms, rose by three points to -55 per cent.
This slight uptick is not unfounded, as they echo the tone set by other recent data releases, said CIMB economist Song Seng Wun.
Industrial production numbers showed a 0.5 per cent year-on-year fall in March this year, beating market expectations by quite a margin. Tourist arrivals also rose by 12.3 per cent in the first two months of this year.
With some parts of the economy picking up though overall sentiment is still weak, the 1.8 per cent Q2 growth prediction from the BT-UniSim survey "supports this general feeling", said Mr Song.
Added to the sense of weakening pessimism was that China's economy seems to have emerged from the rough patch seen earlier this year. China's economic growth, industrial output, fixed-asset investment and retail sales data improved in March.
Respondents to the BT-UniSim survey reflected this mood. Asked which country will have the largest impact on sales this year, survey respondents most often cited China.
This is followed by Malaysia, Indonesia and the United States.
More notably, China's impact has strengthened. This is the first time since 2012, when respondents started being asked this question, that China has been one of the top-three most-cited countries irrespective of firms' size, ownership and sector.
This underscores how leveraged Singaporean firms are to the Chinese economy, said ANZ economist Ng Weiwen.
"Notwithstanding the lingering uncertainty on the strength in external demand, growth-supportive policies in China will bode well for Singapore firms," he said.
OCBC economist Selena Ling, however, cautioned firms against being too optimistic about China's stability.
Pointing to high debt and leverage conditions as weakening credit and liquidity for Chinese corporates, and also defaulting of state-owned enterprises, she said: "It's early days of stabilisation, but the worst may not be over for China yet."
External growth is still tepid and domestic growth muted, she said, and pointed to the BT-UniSim survey's growth prediction that outlook for the economy was still patchy.
"My sense is that Q2 domestic growth will be very soft as well - at sub-2 per cent or even 1.8 per cent.
"In fact, a technical recession still looks possible in the first half of 2016," she said.