Business confidence for Singapore manufacturing, services firms ease for next 6 months

SINGAPORE business optimism remained positive into the new year, although both manufacturers' and services firms' optimism for the next 6 months have receded from the previous poll.

A net weighted balance of 8 per cent of manufacturers are optimistic about prospects from January to June compared to in the fourth quarter of 2021, according to a survey from the Economic Development Board (EDB) on Monday (Jan 31). This was a step down from the 16 per cent seen in the previous poll last October.

For services firms, a net weighted balance of 14 per cent are optimistic, down from 19 per cent previously, in a similar survey conducted by the Department of Statistics (SingStat).

The net weighted balance, used to gauge business sentiment, is the difference between the weighted shares of positive and negative responses.

In manufacturing, a weighted 15 per cent expected improved conditions ahead, down from 22 per cent in the previous survey.

This compares to the 7 per cent of firms expecting conditions to worsen, up from 6 per cent before.

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The transport engineering cluster was the most optimistic, with a net weighted 54 per cent of firms anticipating an improved operating environment in the next 6 months ending June 2022.

Despite the uncertainties caused by Omicron, the aerospace segment within the cluster continues to expect higher demand for aircraft maintenance, repair and overhaul work with more countries easing international travel restrictions.

Similarly, the land and marine and offshore engineering segments are also optimistic about business outlook as firms expect to see continuous recovery in the global automotive and oil and gas markets despite supply chain challenges.

Most of the other clusters were optimistic about business conditions in the next 6 months. The only exception was the electronics segment, where a net weighted balance of 4 per cent of firms are expecting a less favourable business situation for the period of January to June, compared to the fourth quarter of 2021.

For the next 3 months, most of the clusters expect output to rise, with the exception of the electronics and precision engineering clusters.

Within the precision engineering cluster, the machinery and systems segment forecasts a decrease in output from a high base in the preceding quarter. The precision modules and components segment expects output to be seasonally lower as well.

At the same time, firms in the cluster also foresee that supply chain bottlenecks and strong market competition could weigh on orders and production.

A majority of manufacturing firms expect employment levels in the first quarter of 2022 to remain similar to the previous quarter.

Overall, a net weighted balance of 12 per cent of manufacturers expect to increase hiring in the next 3 months, with the transport engineering and general manufacturing clusters being the most optimistic in their employment outlook.

In the services industry, a weighted 23 per cent of firms are upbeat about business conditions, down from the 25 per cent in the previous survey.

Meanwhile, 9 per cent of firms are expecting conditions to worsen, up from 6 per cent before.

Among the services sector, only the real estate industry is expecting less favourable business conditions in the coming months, with a net weighted balance of 12 per cent of firms expecting less favourable business conditions in the coming months.

In particular, firms engaged in the rental of retail premises expect downward pressure on rental rates due to weaker demand for such spaces.

Most industries - with the exception of real estate - expect to see higher operating receipts, as well as an increase in hiring activity for the first quarter of the year.

Selena Ling, OCBC head of treasury research and strategy, said cooled sentiments in the services sector can be partly attributed to the Omicron outbreak "which may have contributed to some tightening of restrictions for many regional economies including the suspension of vaccinated travel lanes for Singapore".

"The most bearish is the real estate industry, which is likely due to the recent cooling measures introduced in December, coupled with the expected rising interest rate environment," she said.

Agreeing, Maybank Kim Eng economist Chua Hak Bin said property transactions will likely fall sharply in early 2022.

As for the manufacturing sector, Ling pointed out that the main drag was the electronics cluster.

"Even though semiconductor demand remains healthy, we are approaching a slower season, with especially softer demand for electronic modules and components," she said, adding that China's ongoing slowdown is also likely to impact export orders.

Chua said some manufacturing sectors may be less upbeat because of supply chain disruptions, component shortages and rising material and labour costs.