You are here
S'pore businesses still mired in pessimism
BUSINESS sentiment in Singapore has shown no sign of improving after a first quarter of poorer sales, profits and orders. Pessimism among companies remains at its highest in more than two years, according to the latest Business Times-UniSIM Business Climate Survey, which predicts a slight pickup in GDP growth in Q2.
Of the 158 firms polled in March and April, 52 per cent expect business prospects in the next six months to worsen year-on-year, up from 50 per cent in the previous quarter's survey. The proportion of firms expecting brighter prospects, on the other hand, shrank to 18 per cent, from 21 per cent a quarter earlier. The remaining 32 per cent expect no change in business conditions.
As a result, the business prospects net balance (which takes the difference between the proportion of positive and negative responses, weighted by the firms' sizes and sectors) slipped to -29 per cent from last quarter's -27 per cent. Though the drop was statistically negligible, it does mean that companies' gloom has not abated since a sharp plunge into pessimism a quarter ago.
That bleak outlook was shared by firms large and small, foreign-owned and local, with pessimism rising most from a year ago among firms in manufacturing, commerce, and financial and business services. Most pessimistic about the next six months, though, are the construction firms, said the report, co-authored by Chow Kit Boey and Chan Cheong Chiam.
The sentiment of those in construction is not captured in the most recent official business expectations surveys of manufacturers and services firms - both of which have shown a turnaround in sentiment. But the official surveys differ from the Business Climate Survey in that firms are asked to compare prospects to those a quarter ago, rather than a year ago.
The persistent pessimism comes on the back of lower levels of business activity in Q1. A new Business Climate Index introduced in the latest edition of the report - based on companies' responses on how sales, profits and orders or new business changed - fell 7.7 per cent in Q1 2015, from Q4 2014.
Falling profits became more widespread. 57 per cent of the firms reported a contraction in profit, outnumbering the 19 per cent with profit growth by a larger margin. Construction firms were hardest hit.
More than half the firms polled (54 per cent) also reported declines in orders or new business secured, versus just 21 per cent with increased order volumes. Compared to the previous quarter, more firms were reporting declining orders and new business.
The only indicator of business activity for which the firms polled reported less widespread contraction was sales. But this was because a larger proportion of firms were reporting no change in sales. The share of firms reporting sales growth had in fact slipped to 22 per cent, from 24 per cent a quarter earlier.
Sales growth stemmed mainly from the transport and communications, and financial and business services sectors. As with profits, sales reports from those in the construction sector were much worse than a quarter ago.
Ms Chow said that the current sales contraction phase - now in its 15th quarter - is the longest in the survey's 20-year history but has been comparatively mild. The last contraction during the global financial crisis of 2008-2009 was much deeper but spanned a shorter six quarters.
There are different causes for concern this round. Indicators from the past two editions of the survey "suggest the presence of structural changes differing from previous contraction periods, as well as less favourable business conditions abroad", Ms Chow said.
Economists have cited repeatedly the challenges to businesses from the ongoing restructuring of the economy, particularly cost pressures from the tight labour market. Uncertain external demand from abroad - particularly with slowing growth in China - has been another concern.
For now, the net balances indicators which (lagged a quarter) have tracked GDP growth closely, imply growth in the current quarter of between 2.1 per cent and 2.4 per cent. This means a slight pickup in growth is possible, based on the official advance estimate of 2.1 per cent growth in Q1.
But private sector economists are expecting the Ministry of Trade and Industry to upgrade that flash growth estimate to 2.2 per cent when final GDP figures are released later this month, since the manufacturing sector did not do as badly as expected in March. The report's business climate index echoes this: its historical correlation with GDP predicts that the Singapore economy grew 2.6 per cent in Q1 - above the advance estimate of 2.1 per cent.