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BT-SUSS survey shows better Q4 mood; but outbreak has changed everything
AFTER six straight quarters of deterioration, business conditions improved in the last quarter of 2019 and firms were feeling less pessimistic about the future - at least before the severity of the novel coronavirus outbreak became apparent - according to the latest Business Times-Singapore University of Social Sciences (BT-SUSS) Business Climate Survey.
The quarterly survey was conducted from Dec 19 to Jan 17 with 131 respondents, of which 80 per cent replied by Jan 6 when news about the virus was less dire, said Chow Kit Boey, one of the project consultants.
"If the survey were to be conducted now, firms will definitely be more pessimistic," she added.
In the fourth quarter, net balances in all three areas of sales, profit, and orders or new business improved, though staying in negative territory. The net balance is the difference between the share of firms seeing a year-on-year increase in an indicator, and those reporting a decrease. A positive net balance suggests expansion and a negative one, contraction.
The sales net balance improved 10 percentage points to -26 per cent, from -36 per cent in the third quarter.
Net balances were -32 per cent for profits and -26 per cent for orders or new business, both improving from -40 per cent in the third quarter.
The survey has breakdowns for foreign versus local firms, and large versus small firms. Small firms were an outlier in being more optimistic about overseas business than their overall business, and also being the only group to see sales worsen.
Foreign firms saw the largest improvement in orders or new business, with the net balance entering positive territory at 18 per cent. They were the only group to be optimistic about business prospects, at 16 per cent.
Firms were asked about business prospects for January till June 2020. Overall, pessimism was significantly reduced from the previous survey, with the net balance improving by 37 percentage points to -8 per cent. But all this was before the virus looked set to take a toll on the economy.
Maybank Kim Eng senior economist Chua Hak Bin cautioned: "We should interpret the improvement in business conditions with caution, given the unexpected Wuhan virus outbreak. Hospitality, travel and retail will be especially hard hit and business conditions will likely collapse in the first quarter."
Based on regression analysis, Ms Chow and fellow project consultant Chan Cheong Chiam predicted year-on-year gross domestic product growth of 1.9 per cent to 2.6 per cent in the first quarter of 2020, "barring any serious negative impact of the Covid-19 outbreak" and making an allowance for over-estimation. But that was at the point of publication on Jan 31.
Among other things, the withdrawal of exhibitors from the Singapore Airshow amid virus concerns "will certainly affect the Q1 growth rate," said Ms Chow.
Dr Chua expects GDP to contract by about one per cent in Q1 with hotels, transport, and retail being hit. "Disruptions to China's supply chain will also likely interrupt and delay the manufacturing recovery to the middle of the year," he added.
The survey found transport and communications to be the best-performing sector in Q4, top for profits and orders or news business, and tied for first in optimism - at least then. Financial and business services had the best sales performance.
Economic uncertainty notwithstanding, three-fifths of respondents said they planned to expand abroad in the next six months, similar to a year ago. Malaysia fell out of the top three destinations for expansion, with China instead joining Indonesia and Vietnam in the top three.
"Investors have turned more cautious on Malaysia because of the uncertainty over the transition of power; tighter fiscal finances due to the 1MDB debt overhang; and delays in many of the infrastructure projects," said Dr Chua.
While it may be hard to extrapolate from this quarter's improved results, given the continuing virus outbreak, the long-awaited turnaround could still be on the cards - just delayed.
"Optimism will likely return once the Wuhan virus outbreak is contained and border restrictions on travel are lifted. Growth could rebound in the second quarter if the extreme border measures and warmer temperatures show signs of containing the virus spread," said Dr Chua.
"Firms will likely be less optimistic in the next survey, but might be more positive by the middle of the year as orders and investments are deferred into the second half," he concluded.
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