Business sentiments of Singapore SMEs fall to three-year low

Singapore

DECLINING sentiments among Singapore small and medium-sized enterprises have dragged the SBF-DP SME Index reading to a three-year low of 51.9, with all sectors expecting a decline in both turnover and profitability in the final quarter of 2015.

The forward-looking index, which measures the sentiments of SMEs, has fallen every quarter this year, and this quarter's 51.9 represents the lowest recorded score since the first quarter of 2013 when it registered 51.6.

"The continuing decline in SME business sentiments is worrying ... With global demand for our goods and services remaining weak and Singapore's top two trading partners, China and Malaysia, going through a bad patch, the Singapore economy could be hovering on the edge of recession," said Ho Meng Kit, CEO of Singapore Business Federation (SBF).

Specifically, SMEs' turnover expectations dropped from a score of 5.55 in the last quarter to 5.38 this quarter, while profitability expectations dipped from 5.44 to 5.26. Business expansion expectations also dipped to 5.83 this quarter from 5.94 last quarter. Every industry reported lower business expansion expectations, except the commerce/trading sector where the index score remained unchanged.

Lincoln Teo, chief operating officer of DP Info, noted that while SMEs are feeling nervous, the fall in the index does not mean SMEs are facing a doom and gloom scenario.

"What it does indicate is that SMEs expect their rate of sales and profit growth to be slow," he said.

Sectorally, the three largest sectors - construction/engineering, manufacturing, and commerce/trading - all reported a drop in optimism for the next two quarters.

The construction/engineering sector reported the largest drop in sentiment, from 54.0 to 51.7, followed by the manufacturing sector from 53.4 to 51.4. The commerce/trading sector saw sentiment fall from 53.0 to 51.6.

The reasons influencing decline in sentiment for the construction / engineering sector include weakening residential property prices and limited opportunities in the commercial and industrial property sectors.

Mr Ho warned that the lower turnover and profit expectations may lead to lower hiring expectations. "As SMEs are our major employers contributing to 70 per cent of jobs, this could in turn lead to a further slowdown in job creation. We need to closely monitor the well-being of the SME sector as it undergoes restructuring to increase productivity and build capabilities in this more difficult environment," he said.

In terms of hiring expectations, SMEs in the manufacturing sector experienced the largest dip in sentiments, from 5.48 the previous quarter to 5.34. Only SMEs in the retail and business services sector expect to ramp up their hiring. The retail sector's outlook increased from 5.27 to 5.38 while the business services sector's outlook increased from 5.65 to 5.67. Overall outlook fell from 5.46 to 5.43.

A total of 3,600 SMEs were interviewed for the SBF-DP SME Index, a joint initiative of the Singapore Business Federation and DP Info.