Manufacturers' business sentiment improves; service sectors less upbeat

Singapore

COMPANIES in Singapore's manufacturing sector expect business conditions to improve in the first half of 2020, although the services sector is less optimistic.

This is according to separate surveys by the Economic Development Board of Singapore (EDB) and the Singapore Department of Statistics (SingStat) released on Friday. Both surveys were conducted from December to January and likely did not take into account recent developments of the Wuhan virus spread.

In the services sector, a net weighted balance of 2 per cent of firms predict a less favourable business outlook from January to June 2020, SingStat's survey showed.

While this is weaker than the outlook for the half year from October 2019 to March 2020 (one per cent net weighted balance), it is an improvement from the year-ago results of a -4 per cent net weighted balance. Within the services sector, the companies that foresee more favourable business conditions in H1 2020 are in the industries of finance and insurance, information and communications, recreation, community and personal services.

On the other hand, those in the accommodation, retail trade, and food and beverage services industries are less upbeat, SingStat said.

The overall services sector also expects operating receipts to decrease in the first quarter of 2020, compared with Q4 2019.

As for the manufacturing sector, EDB's survey showed that all clusters - except the general manufacturing industries cluster - are optimistic about better business prospects in the first six months of this year.

Overall, a net weighted balance of 12 per cent of Singapore manufacturing firms anticipate an improved business situation this January to June, compared to Q4 last year. In particular, sentiment in the electronics cluster turned positive, with a net weighted balance of 23 per cent of firms expecting an improved operating environment in the next six months compared with the previous quarter.

This positive outlook is "largely attributed to the semiconductors segment which expects demand to improve" with the roll-out of 5G technology, as well as expectations that the US-China trade conflict is unlikely to deteriorate further, EDB said.

In terms of output, the precision engineering cluster is the most upbeat among manufacturers. A net weighted balance of 38 per cent of precision engineering firms project a higher level of production in Q1 this year, compared to the previous quarter.

As for employment forecasts, the bulk of companies in the manufacturing sector expect Q1 employment levels to remain similar to that in the preceding quarter. Overall, a net weighted balance of 3 per cent of Singapore manufacturers plan to hire fewer workers in the next three months.

OCBC chief economist Selena Ling said the survey should be taken with "a big pinch of salt", adding: "It probably under-captures the potential caution that will accompany the Wuhan virus outbreak. However, these are quarterly surveys, so the next one will be in March-April where hopefully the Wuhan virus may have peaked or blown over, so it is also hard to estimate the magnitude of any plausible correction."

DBS senior economist Irvin Seah said the epidemic outbreak would definitely hit the services sector "head on", particularly industries such as tourism, F&B, retail and transport services, while the impact on the manufacturing sector would be less as the risk factor of the US-China trade war has eased.

However, Lee Ju Ye, Maybank Kim Eng economist, said the manufacturing sector may still feel an impact if China demand slows significantly because of the outbreak.

"With China accounting for 17 per cent of Singapore's total non-oil domestic exports - which mainly consists of electronics - reduced demand from China could delay the manufacturing and exports recovery," Ms Lee said.