SMEs optimistic for H2, but less than past years

Singapore

SINGAPORE'S small and medium enterprises (SMEs) are cautiously optimistic about the third and fourth quarters of 2019 - though gloomier than they have been about any other second half in recent years, according to a quarterly survey.

The SBF-Experian SME Index rose marginally to 50.8 in the latest quarter, from 50.4 the quarter before. A reading above 50 indicates that companies expect business to improve in the next six months, while a reading below 50 indicates that they expect lower business activity.

"The slight rebound in sentiments, buoyed primarily by the retail, F&B (food and beverage) and business services sectors, could be due in part to seasonal effects, such as expectations of the year-end holiday season," said Singapore Business Federation (SBF) chief executive officer Ho Meng Kit.

Despite the marginal rise, the latest figure was down 1.95 per cent year on year, and marked the lowest reading for the third and fourth quarters since the survey began in 2010.

Noting that the trade war between the United States and China has hit Singapore's factory orders and exports, Mr Ho added: "Our businesses should not pin their hopes on a resolution in the trade war anytime soon as the current trade tensions are fuelled by underlying problems that run deep. Business sentiment therefore could deteriorate further."

A joint initiative of the SBF and Experian, the latest edition surveyed more than 3,600 SMEs from April 15 to May 24 on their expectations for July till December.

Expectations were up quarter on quarter, but down year on year for five of the seven measures on which firms were surveyed: turnover, profitability, business expansion, hiring and capacity utilisation.

The uptick in sentiment might be because SMEs "are planning to take advantage of Budget 2019 measures and the upcoming holiday spending season", said Experian Southeast Asia general manager for credit services and strategy James Gothard.

Turnover and profitability expectations improved most quarter on quarter, with the latter turning from pessimism to optimism.

Expectations for capital investment improved marginally both quarter on quarter and year on year, while expectations for access to financing were down in both comparisons.

Of six industry sectors, overall sentiment improved in all except commerce and trading. SMEs in that sector stayed pessimistic about profitability for the third quarter in a row.

Though still in optimistic territory, investment expectations in commerce and trading eased to the lowest reading in almost seven years, "highlighting growing concerns of the sector over the protracted trade war", said SBF and Experian.

"SBF remains open and ready to extend a helping hand to businesses affected by the trade war," said Mr Ho, urging SMEs to focus on upgrading, training, transformation and diversification during these uncertain times.

In contrast, retail and F&B as well as transport and storage saw higher expansion expectations, both year on year and month on month.

SBF and Experian noted that Asean restaurant associations signed a memorandum of understanding in March. In transport and storage, the improvement "is likely due to the sector seeing longer-term opportunities within Asean and China, bolstered by the recent formation of the China-Asean Multimodal Transport Alliance", they added.

Continued positive expectations for business expansion and capital investment, despite the muted outlook, might be because growing global headwinds are driving SMEs to pursue new opportunities, they said.