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'Cautious optimism' in retail, F&B even as SMEs' business outlook dips to all-time low

BUSINESS sentiment among small and medium-sized enterprises (SMEs) in Singapore have dipped to a record low, but those in the retail and food and beverage (F&B) sectors appear encouraged by the reopening of physical stores, according to a industry survey.

The SBF-Experian SME Index for October 2020 to March 2021 fell to 46.3, the lowest reading since the index began in 2009, exceeding the previous all-time low of 48.3 logged in April this year.

The index, a joint initiative of the Singapore Business Federation (SBF) and information service Experian, is based on a survey of more than 2,100 SMEs across six sectors conducted between July 13 and Aug 21.

No survey was conducted for the June to December period as most SMEs were experiencing difficulties assessing the impact of Covid-19 during the "circuit breaker" period, SBF and Experian said, referring to Singapore's partial economic shutdown from April 7 to June 1.

The latest reading comes as pandemic-related restrictions worldwide have led to steep declines in key global markets, SBF and Experian said in a joint release.

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Singapore's economy shrank by 13.2 per cent in the second quarter, while authorities expect a full-year contraction of 5-7 per cent.

SMEs from the six sectors have all registered readings below 50, signalling contractionary sentiments, SBF and Experian said.

The construction and engineering sector registered the most significant decrease in sentiment, falling 6.1 per cent to 46.4, likely due to extended dormitory quarantines and additional costs from prolonging project timelines, SBF and Experian said.

Firms in the retail and F&B sectors were the least optimistic, with an overall score of 44.6. However, SBF and Experian point to cautious optimism among these SMEs, as they appear to be benefiting from the gradual recovery of domestic demand and with the easing of Covid-19 measures.

In particular, turnover expectations and profitability expectations for retail and F&B SMEs have bottomed out, while business expectations have turned positive. At the same time, there has been a minor improvement in capital investment expectations and hiring expectations.

"These suggest that retail and F&B SMEs seem to harbour hope that the sector will continue to improve as retail sales have recovered sharply after the 'circuit breaker' restrictions were lifted," SBF and Experian said.

On the whole, overall sentiments declined for four of the seven indicators tracked. Turnover expectations and profitability expectations set a new low on record, in spite of government support, possibly reflecting SMEs bracing for the recession, SBF and Experian said.

Capacity utilisation and hiring expectations also fell, although business expansion expectations and capital investment expectations were unchanged from the previous survey.

"These readings suggest that many SMEs may be adopting a wait-and-see approach, holding back on expansion plans until the outbreak has stabilised both locally and globally," SBF and Experian said.

For SMEs in the commerce and trading sector however, this is the first time that the business expansion expectations reading fell below five. This could indicate that these businesses are relooking their business strategies and consolidating their efforts to preserve their core capabilities and address supply chain disruptions, SBF and Experian said.

"With the Singapore economy expected to enter its deepest recession on record, the slew of supporting initiatives from the Singapore government will be important to tide SMEs through this challenging period," James Gothard, general manager for credit services and strategy in South-east Asia at Experian, said.

Noting that there is no return to before and that the post-Covid-19 world is going to be very different, Ho Meng Kit, chief executive of SBF, said: "We therefore urge companies to maximise the support from the government, re-invent themselves and strategically position their businesses for the eventual recovery in a post-Covid-19 world."

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