Brighter skies ahead for firms

[SINGAPORE] Business sentiment has finally turned a corner: optimistic companies outnumber pessimistic ones for the first time in more than two years, says the latest BT-UniSIM Business Climate Survey report.

The quarterly survey, whose indicators have shown a strong correlation with GDP growth over its 19-year history, also predicts that the Singapore economy could grow as much as 5.9 per cent in the first quarter of this year.

Of the 147 companies that responded to the survey in late December and early January, 33 per cent said that they expect business prospects to improve in the first half of 2014.

Though business gloom has been receding since the final quarter of 2012, the group reporting "worse" or "much worse" business conditions has remained larger than its more positive peer group since Q2 2011.

That changed last quarter. Fewer than three in ten companies now expect a deterioration in business conditions over the next six months. The business prospects net balance - the difference between the proportion of sanguine and pessimistic responses - thus jumped 15 percentage points to 4 per cent.

This first positive showing in more than 30 months brings the BT-UniSIM survey report broadly in line with what the latest official business expectations surveys of manufacturing and services firms say.

For services firms, the outlook for January to June 2014 remains positive, even though the net weighted balance of one per cent fell from the 8 per cent reported the previous quarter.

And a net weighted balance of 4 per cent of manufacturers polled by the Economic Development Board (EDB) say things are looking up in the next six months - an improvement from the previous quarter's one per cent reading.

Business expectations aside, the three other indicators tracked by the BT-UniSIM survey - sales, profits and new orders - continued to point to contraction in Q4, but a smaller one.

"The stronger net balances in Q4 2013, and the turnaround in business prospects to optimistic sentiment, suggest that Q4 2013 could well be the end of the current contraction phase (as measured by the poll)," said survey director Chow Kit Boey.

However, she noted that respondents have not turned as bullish as they were in Q4 2009, which was when the last contraction phase ended. Then, the business prospects net balance was a resoundingly confident 45 per cent.

"Optimism on business prospects is more subdued . . . This is probably due mainly to weaker growth in China and Singapore's steeper increases in business cost," said Ms Chow.

Even so, the turnaround in business sentiment bodes well for the wider economy. The report's various net balances, which bear a close correlation to year-on-year GDP growth in the following quarter, now predict that the Singapore economy will grow 5.4-5.9 per cent in Q1 2014.

That prediction is based on the official flash estimate of 4.4 per cent GDP growth in the final quarter of 2014.

Economists polled by Bloomberg say that the Ministry of Trade and Industry (MTI) may revise this upwards, to 4.9 per cent, when it releases final growth figures on Thursday. This looks likely, after a surprising surge in December's industrial production.

The economists are projecting even stronger Q1 growth than the survey does, too: the median of seven banks' forecasts was 6.2 per cent.

Of the five broad sectors poll respondents fall into, those in the business of transport & communications had the best showing this round, with the strongest expansion in Q4 sales and profits, as well as the brightest business prospects for the six months ahead.

Manufacturing came in second best, topping the charts for new orders or business in Q4. More small and foreign manufacturers have also seen improvements in sales and profits.

Economists think manufacturing growth will continue to pick up. "Cyclically, we think the strengthening US economy will have positive spillovers to Singapore's manufacturing sector - in particular, the electronics industry," said Barclays economist Joey Chew.

However, she and others have noted that the US rebound's impact on the local economy may be crimped by Singapore's ongoing economic restructuring efforts.

Challenges that local enterprises face as a result of restructuring include "a decline in cost-competitiveness, the hollowing out of some production capacity, and increasingly binding resource constraints", including the tighter supply of labour, Ms Chew said.