Singapore SMEs in contractionary mode for fifth straight quarter: OCBC

SMALL and medium-sized enterprises (SMEs) were in contractionary mode for the fifth consecutive quarter, the latest OCBC SME Index released on Tuesday (Apr 16) indicated.

The bank’s latest quarterly index registered a reading of 49.7 points in the first quarter of 2024, edging up slightly from 49.5 points in the preceding quarter.

This came as SME collections and payments grew by 1.4 per cent and 1.9 per cent year on year respectively, against the backdrop of bumpy disinflation trends and elevated cost pressures.

The index measures SME business health and performance. A reading above 50 indicates improved activity; one below 50 indicates a deterioration relative to the same period the year before.

Domestically oriented sectors such as education and food and beverage (F&B) continued to outperform, turning expansionary in Q1 2024.

Education rose to 50.5 points, up from 49.7 points previously. Growth was propelled by expansions in training centres and recreation classes.

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F&B rose to 50.2 points, up from 49.6 points the previous quarter. This was due to gains in both F&B retail and F&B services, with businesses likely benefiting from higher domestic consumption during the Chinese New Year and from tourism receipts.

The retail sector has also “shown signs of resilience and registered modest growth” over the past quarters, said OCBC, supported by sustained international visitor arrivals and healthy non-discretionary spending. It has maintained a reading of 50.9 points for the last three quarters.

While SMEs in outward-oriented industries such as manufacturing, transport and logistics and wholesale trade experienced slight improvements this quarter, they remained in contraction.

The manufacturing sector rose to 49.8 points, inching up from 49.4 points previously. Though overall growth was dragged down by a weak performance in the consumer products segment, OCBC said that SMEs should begin to see higher factory activity as bigger manufacturing players benefit from the upturn in the global electronics cycle and demand.

Transport and logistics continued its upward trajectory this quarter, jumping to 49.7 points from a previous reading of 47.8 points. Despite weak growth in the sea transport and logistics segments, the recovery was supported by a pick-up in exports in early 2024, said the bank – though it cautioned that “growth remains fragile”.

Linus Goh, OCBC’s head of global commercial banking, expects the SME Index to remain flat in the near term, before seeing a gradual upturn towards H2 2024.

While Singapore’s outward-oriented sectors are likely to be “positively impacted” by the global electronics turnaround and positive outlook for Asean economies, he flagged sluggish domestic consumption and export growth from the Chinese market as downside risks, amid lingering geopolitical tensions.

Findings from OCBC’s latest SME Business Outlook poll also showed higher business optimism among SME owners in general. About 51 per cent of 1,200 business owners surveyed in Q1 2024 expect their businesses to perform better over the next six months, compared with 47 per cent in the preceding quarter.

The sectoral outlook, however, remains mixed. SMEs in industries such as building and construction, as well as information and communications technology, showed less confidence in future economic conditions, the poll noted.