SME sentiment at neutral after 6 years of optimism

Singapore

AMID economic headwinds, sentiment among small and medium-sized enterprises (SMEs) has dipped to neutral after six straight years of optimism, an index compiled by the Singapore Business Federation (SBF) and DP Information Group has found. The overall index score among these businesses fell 1.1 to sit at 50.0, a score indicating that they do not expect to achieve growth in the next six months (Q2 and Q3 of this year).

The score of 50.0 is the lowest since the index was first published in the first quarter of 2010. To arrive at the score, SBF and DP surveyed some 3,600 SMEs in January and February on their outlook and sentiment.

The index found sentiment to have fallen across the board; the transport/storage sector recorded the largest fall of 4.3 per cent, from 53.1 to 50.8.

The second largest fall was in the business-services sector, which fell from 53.5 to 51.4, a drop of 3.9 per cent. These two sectors were the two most optimistic sectors in last quarter's index.

The manufacturing sector recorded an index score of 49.6, indicating that the sector expects a contraction in the next six months. This sector clocked 50.6 in the previous quarter.

The retail/F&B sector came in at 50.1, down 1.6 per cent from 50.9 in the previous quarter.

SBF's chief executive Ho Meng Kit said: "The convergence of domestic factors such as low economic growth and rising business costs, as well as global headwinds such as heightened volatility in the financial markets and a slowdown in the Chinese market have impacted SMEs in Singapore."

Lincoln Teo, chief operating officer of DP Information Group, said that while these factors are weighing SMEs down, the SMEs are also adopting a wait-and-see approach, with the 2016 Budget announcement coming next week. "SME owners are thus inclined to pull back on their business outlook as they anticipate the upcoming plans to be revealed," he said.

Looking ahead into the next six months, turnover expectations dipped from 5.22 to 5.12; profitability expectations dipped from 5.08 to 5.04. Business-expansion expectations were down from 5.61 to 5.52, and capital investment expectations slipped from 5.27 to 5.26.

Mr Ho, referring to the recommendations made in SBF's position paper on building a vibrant Singapore, said: "In the short term, the Singapore government could look at ways to help SMEs tide over the current challenging conditions, for example, by reviewing high business costs and holding back increases in the foreign workers levy.

"In the medium to long-term, the government could adopt a more pro-business approach in policy formulation and development of enterprises.

"Further measures to encourage worker skills upgrading, innovation and internationalisation by companies will be greatly welcomed."