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Q3 business climate in S'pore better, but external prospects start to fray

BT-UniSIM survey was conducted after Brexit but before Trump won US election; economists expect mood to turn more sombre

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A survey among businesses here has found that conditions improved for them in the third quarter, lifting their outlook for the next half year.


A survey among businesses here has found that conditions improved for them in the third quarter, lifting their outlook for the next half year.

But signs of weakening international business prospects are already emerging, prompting economists to question how long the uplift will last.

Economists noted that the latest Business Times-UniSIM Business Climate Survey was carried out at a time of intensifying sentiment against globalisation. The respondents were polled between late September and mid-October - late enough to have captured the sigh of relief as markets stabilised after "Brexit", or the UK's vote to leave the European Union.

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However, the survey came too early to reflect the global business outlook in the aftermath of real-estate mogul Donald Trump's stunning upset victory in the US presidential election.

ANZ economist Ng Weiwen said: "There was a relief rally after the Brexit vote, but a Trump victory has changed the optics.

"If you conducted the survey right now, I wouldn't be surprised if the results turned out much worse."

The 193 firms that responded to the survey were a mix of local and foreign firms of different sizes, and representing a cross section of the economic sectors.

Overall, headline Q3 net weighted balances - the difference between the proportion of firms that anticipated better business prospects and those that expected worse - across four indicators were slightly better than those measured in Q2, though still in negative territory.

For sales, the overall balance was unchanged from Q2, at -39 per cent; for orders and new business, it was also unchanged at -44 per cent.

However, firms reported firmer profits. The balance was at -40 per cent, or 8 percentage points higher than in Q2.

On the basis of this, respondents lifted their outlook from October 2016 to March 2017. Businesses reported diminishing pessimism, with prospects moving 2 percentage points higher to -48 per cent.

Notably, 1 per cent of respondents harboured "much better" business prospects, up from none in the previous three quarters, wrote survey director Chow Kit Boey in the report.

Calculations based on these results thus put Q3's gross domestic product (GDP) growth at 0.5 per cent year-on-year, shy of official flash estimates of 0.6 per cent.

Fuller estimates will be released this Thursday.

Regression analyses also predict Q4 growth to come in at between 1.4 and 2.2 per cent, and full-year growth, at 1.7 to 1.9 per cent.

This is more optimistic than market sentiment. The central bank sees 2016 growth to come in at the lower end of the 1 to 2 per cent forecast.

The BT-UniSIM survey's better Q3 performance and outlook were in part boosted by the profile of participating companies.

Manufacturing, a sector which charted surprisingly strong output growth in September, was the sector that was most represented in the survey; companies from this sector made up a quarter of the respondents.

Local companies were also well represented. Wholly local ones made up 58 per cent of respondents; majority-local ones made up 20 per cent.

Yet beyond the headline numbers, granular details of the survey were already pointing towards darker days ahead for business overseas.

A breakdown of the results showed that better conditions in the domestic market here was the main reason behind the more upbeat note, even as global conditions seemed to deteriorate.

All respondents said that sales to and orders from Singapore fell less than those to overseas markets. Ms Chow wrote: "This implies that sales in Singapore improved sufficiently to offset the decline in sales abroad."

Respondents' answers, when asked to name the country that held the best prospects for them in the next 12 months, also showed that global growth wasn't as rosy as it used to be.

Indonesia and Singapore were the most-cited economies, each named by 18 per cent of respondents; China, at 15 per cent, was the third-most cited.

Together, these three economies accounted for just over half (51 per cent) the 180 responses - significantly higher than the 41 per cent the top three economies shared in 2015. "It implies that economic growth will be relatively less widespread in the next 12 months than a year ago," wrote Ms Chow.

The contrast in firms' views towards domestic and overseas business prospects were in line with those portrayed by recent economic data, said OCBC economist Selena Ling.

She added that the recent bout of Asian currency and bond market rout may pose additional challenges for companies, she said.

Economists remarked that the differing views also aligned with the growing push against globalisation. Their concern is that the situation may worsen.

The biggest doubt they have hovers over the Trans-Pacific Partnership (TPP) trade deal. US President-elect Mr Trump had won the election riding on an anti-trade platform. World leaders at the Asia-Pacific Economic Cooperation (Apec) Summit in Peru this past weekend expressed concern at the dimming prospects of the TPP.

Pointing to the current slate of trade pacts active in the Asia-Pacific and others that have yet to be sealed, CIMB economist Song Seng Wun urged Singapore government officials and businesses not to lose heart should the TPP fail to materialise.

He said: "It's no great loss. And we should not just sit there to wait for things to happen. Work harder to attract American and British firms."

READ MORE: Editorial: TPP's impasse paves the way for China to take lead on global trade