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SMEs expect strong start to 2018

SMALL and medium-sized enterprises (SMEs) in Singapore are increasingly optimistic about future business prospects, as more anticipate improvements in the wider economy to filter through to them in the coming year.

In the latest Singapore Business Federation - DP Info (SBF-DP) SME Index, business sentiment for the next six months rose across all six sectors, lifting the index from 50.6 to 51.2.

A score above 50 indicates an expectation of growth, while a score below 50 signals a possible contraction.

Among all the industries, business services recorded the highest level of optimism, with an index score of 52.1. This is likely buoyed by increased economic activity from other sectors, which drives up demand. Business services support many other industries, providing a diverse range of functions such as real estate, engineering, management consultancy, legal and accounting.

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The next two best performing sectors were manufacturing and commerce/trading, with a score of 51.

The construction and engineering sector, which saw a score of 49.9 in the previous quarter, registered a positive score of 50.4, indicating that SMEs are expecting the tide to change soon. The expectation of a stronger pipeline of public sector projects and the launch of the Industry Transformation Map for the construction sector have added to the sector's positive outlook, according to the report.

Turnover expectations rose from 5.01 to 5.15 across all industries, while profitability expectations also went up from 4.86 to 5.1. A score above five indicates sentiment that turnover and profits are expected to increase, while a score below five indicates possible declines.

Business expansion expectations also continue to stay strong with a score of 5.55 as SMEs look for new opportunities to grow their business and generate more value.

Financing, which was a hot issue that was widely talked about in the past month, became less of a problem this quarter. Access to financing expectations went up from 5.01 to 5.13, with improvements observed across all industries.

Capital investment was the only component in the index which faltered, resulting in a decline from an index score of 5.28 to 5.14. However, the survey said that many SMEs may be holding back new capital expenditure as they await next year's Singapore Budget.

In spite of the good news, Ho Meng Kit, CEO of SBF, urged SMEs to "ride on the tailwind of better times ahead to undertake serious effort to transform their companies".

"There is a long tail of SMEs which need to embrace digitalisation, improve their management so that they can be more innovative and competitive. Good times ahead have not eroded this urgent need for change," he added.

But while the outlook for 2018 is positive, it would not take much for the confidence of SMEs to be dented, warned Dev Dhiman, managing director, South-east Asia & Emerging Markets for Experian (parent company of DP Info).

"A conflict on the Korean peninsula or the Middle East, or moves to wind back free trade and introduce protectionist measures all have the potential to push SMEs back into pessimism," he said.

More than 3,600 SMEs were surveyed during October and November on their outlook.