Mood brightens for services sector, softens for manufacturing

Singapore

BUSINESS expectations of the services sector in Singapore turned positive for the first time in seven quarters, marking its most upbeat sentiment in three years.

The optimism felt by the manufacturing sector, however, has faded slightly. But the biomedical manufacturing cluster surprised with its most upbeat outlook within the sector for the second half of 2017.

Both the manufacturing and services sectors have a net weighted balance of firms who are more optimistic than pessimistic about their business conditions from July to December 2017, based on releases by the Economic Development Board (EDB) and Department of Statistics (Singstat) on Monday.

In the services sector, a net weighted balance of 5 per cent of firms expects more favourable business conditions in H2 compared to H1 - up from -1 per cent in previous quarter's survey and -6 per cent for H2 2016.

A weighted 19 per cent of firms are optimistic about the business conditions for H2 while a weighted 14 per cent foresee slower business. A majority of them - a weighted 67 per cent - expect business activity level to remain the same.The business expectations survey of the services sector for Q3 is conducted by Singstat from June to mid-July 2017, covering some 1,500 enterprises.

Within the sector, food and beverage (F&B) services (net weighted balance of 41 per cent) and accommodation (27 per cent) are the most bullish about their business prospects for July to December 2017, which coincides with the year-end festive season. Hoteliers also foresee better business due to the upcoming Formula One night race in September 2017.

Tan Khay Boon, senior lecturer of SIM Global Education, said: "The higher level of optimism in the F&B services and accommodation shows that the domestic economy is beginning to recover from the weaker labour market."

Banks and insurance companies expect a rise in demand for their services, probably buoyed by stability in the trend of interest rates, he said.

Most bearish is transport and storage, with a net weighted balance of -17 per cent of firms expecting business conditions to worsen.

Dr Tan said continued pessimism in retail trade and real estate showed that these segments are still facing competition from e-commerce and tightening measures in the property market respectively.

A net weighted balance of 9 per cent of firms in the services sector expects operating receipts to rise for Q3 versus Q2, while a net weighted balance of 6 per cent expects to increase hiring in Q3.

In the manufacturing sector, a net weighted balance of 4 per cent of firms expect business to improve in H2, softening from the net weighted balance of 7 per cent in Q2 2017 and -1 per cent in H2 2016, said OCBC Bank economist Selena Ling.

A majority of firms though - a weighted 80 per cent - expects business conditions to remain similar to a quarter ago. EDB's business expectations survey of the manufacturing sector for Q3 was conducted between June and July 2017, when 95 per cent out of 429 firms responded.

Within the sector, biomedical manufacturing cluster recorded a net weighted balance of 14 per cent, with expectations of higher orders in the medical technology segment in the months ahead.

Precision engineering (10 per cent) and electronics (7 per cent) clusters continue to show optimism, mainly led by the machinery and systems segment, which foresees higher semiconductor-related equipment demand for the coming months, as well as the improved order outlook for optical instruments and dies, moulds, tools, jigs and fixtures.

Ms Ling said: "For electronics, the growth driver remains strong demand for chips used in smart phones, automotive and storage applications, and reinforces our optimism that the electronics momentum should sustain in the near term."

Transport engineering and general manufacturing industries have negative net weighted balances, where more firms are expecting a less favourable operating environment.

All manufacturing clusters, except general manufacturing, forecast a rise in output in Q3 2017. A net weighted balance of 5 per cent of manufacturers plan to hire fewer workers in Q3 than in Q2, led by the transport engineering and general manufacturing industries clusters.

Ms Ling said on balance, headline GDP growth prospects are tilted to the higher end of the 2-3 per cent forecast range, but employment opportunities remain skewed largely towards services.

"While electronics momentum should sustain, it would be interesting to watch if the biomedicals cluster steps up in H2. For the services cluster, there are also tentative signs of a broadening base for improvement in the H2 outlook which should bode well out into 2018," she said.