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Q1 business sentiment sinks to near-contractionary levels
BUSINESS optimism in Singapore tumbled to near-contractionary levels in the first quarter of 2015 amid mounting concerns over an intensification of global political headwinds and softer regional demand in the external-oriented sector.
According to the Singapore Commercial Credit Bureau's (SCCB) latest Business Optimism Index (BOI) study, BOI tumbled from +10.79 percentage points in the fourth quarter of 2014 to +1.11 percentage points in Q1 2015.
This marks the second lowest BOI score in two years since Q1 2013 when BOI fell into the contractionary region at -0.82 percentage point.
On a year-on-year (y-o-y) basis, overall BOI score fell sharply from +13.13 percentage points in Q1 2014 to +1.11 percentage points in Q1 2015.
This quarter, only three of six indicators have remained in the expansionary region.
For the first time in nearly two years, volume of sales and net profits have both fallen into the contractionary region. According to SCCB, both volume of sales and net profits were the hardest hit as optimism levels deteriorated from +22.14 percentage points to -5.71 percentage points and +17.14 percentage points to -5.00 percentage points, respectively.
Inventory levels are expected to moderate markedly from +3.57 percentage points in Q4 2014 to +1.43 percentage points in Q1 2015. This also marks the lowest inventory level in nearly two years. Inventory levels registered a previous low at +1.46 percentage points in Q2 2014. Selling prices have remained unchanged at +4.29 percentage points.
Meanwhile, new orders have improved slightly from -13.04 percentage points in Q4 2014 to -9.52 percentage points in Q1 2015. While overall performance of the manufacturing sector has remained subdued, biomedical manufacturers are anticipating a slightly better quarter ahead as output within the sector expanded.
Hiring sentiment has remained positive in Q1 2015, driven mainly by strong hiring intentions among domestically-oriented local firms.
According to SCCB, optimism levels in employment have edged upwards further, from +10.71 percentage points in Q4 2014 to +12.14 percentage points in Q1 2015.
Across the sectors, both the services and agriculture sector ranked as the most optimistic sectors. Sentiment in the mining sector also improved with three of six business indicators in the expansionary region, compared with only one in the previous quarter.
Meanwhile, the construction sector continued to experience a decline in optimism with only three of five business indicators in the expansionary region. This quarter, both volume of sales and net profits are expected to drop.
Businesses in the wholesale sector see all five business indicators moderating downwards, after registering as the optimistic sector in Q4.
The least optimistic sector is the transportation sector. The poor showing comes amid a strong moderation in growth and pull-back in the water and air transport sub-sectors.
According to SCCB, the two most important areas of investment for 2015 are machinery and capital equipment, and skills upgrading of employees, at 42 per cent and 35 per cent respectively. About 12 per cent of the firms have indicated IT infrastructure and 4 per cent have indicated research and development as the most important area of investment.
Local firms have also identified higher business costs as the main challenge for 2015 (48 per cent), followed by global economic uncertainties (22 per cent), foreign labour issues (14 per cent), reduced sales (12 per cent), lack of financing (2 per cent) and others (2 per cent).