Q4 business sentiment dips but industry watchers remain upbeat

Singapore

BUSINESS sentiment among local companies has eased for the fourth quarter of 2017, but still remains in positive territory, according to the latest Business Optimism Index study by the Singapore Commercial Credit Bureau (SCCB).

The index fell from +3.58 percentage points in Q3 2017 to +2.60 percentage points in Q4. It was also lower compared to the +2.87 percentage points in the same period a year ago. A number above zero indicates optimism, while a figure below that indicates pessimism.

The quarterly study surveyed 200 companies on their business sentiments for Q4. The six indicators used to measure overall business sentiment in Q4 are a mixed bag, with four indicators moderating downwards on a quarter-on-quarter basis.

The two areas that showed improvements in outlook are selling price and new orders, while volume of sales, net profits, inventory levels and employment levels have fallen quarter-on-quarter - a sign that businesses are still cautious about their outlook in the near future.

Despite the relative decline in sentiment, industry watchers said that they remain positive about business growth for the rest of the year, barring any unforeseen downsides.

OCBC economist Selena Ling told The Business Times: "On the whole, it's a more upbeat picture of the second half of the year. 2017, in a sense, is already in the bag as we have already seen a strong first-half growth, and the base is broadening out from when we started out in the year."

It is no longer just electronics that is powering the economy, but other sectors such as precision engineering, and segments within the services sector such as financial and tourism-related services, she said.

Kurt Wee, president of the Association of Small and Medium Enterprises (ASME), said that he is "cautiously optimistic" about business prospects in the near future. He noted, however, that growth among the sectors remains uneven and could be a cause for concern.

According to the report, the manufacturing, services and wholesale sectors were the most optimistic sectors in Q4 with four indicators in the expansionary region, while the construction sector continues to languish with only two indicators in positive territory.

The optimistic outlook in manufacturing for Q4 was largely driven by star performers electronics and precision engineering.

On top of increases in both volume of sales and net profits, new orders also jumped significantly from +2.5 percentage points in Q3 to +19.05 percentage points in Q4. Employment levels also went up from zero percentage point in Q3 to +2.38 percentage points in Q4.

Sentiments in the services sector also remained upbeat in Q4, largely attributed to resilience in the education, health and social services, as well as corporate services sectors.

As for the wholesale trade industry, it has turned moderately optimistic in Q4 thanks to growth within the wholesale trade of machinery, equipment and supplies.

But there appears to be no relief for the construction industry in sight as prolonged deterioration in both private and public sector building activities continues to weigh down on sentiment. It is the only sector expected to be pessimistic in Q4 2017.

Audrey Chia, CEO of SCCB, said: "We expect that the overall outlook will remain stable for the rest of 2017 given that Singapore's economy will continue to be supported by robust public finances and the government's fiscal buffers to further diversify the country's economic base and keep negative shocks at bay in the near term."

ASME's Mr Wee said that the only way forward for businesses in Singapore is to become "outward looking". Over the last 12 months, he has observed firms becoming more proactive in finding opportunities in the region and beyond.

While businesses here have benefited from the cyclical upturn due to the improved global environment, OCBC's Ms Ling cautioned that companies, especially SMEs, still need to deal with their structural challenges such as innovation and productivity.

Even as growth momentum is expected to continue to the end of the year, it might not carry on in 2018.

Said Ms Ling: "The sentiment remains positive, but in terms of momentum, what goes up must go down at some stage. Expectations have gotten upbeat already, due to manufacturing. This momentum will continue from Q3 to Q4, but the concern is what will happen in Q1 next year."