Singapore companies’ performance and optimism wane in Q3: BT-SUSS survey

SINGAPORE’S businesses saw weaker performance and grew less optimistic in the third quarter of 2022, the latest Business Times-Singapore University of Social Sciences (BT-SUSS) Business Climate Survey has found.

Of the survey’s three indicators of performance, orders or new business weakened, while profits remained in decline. Sales was the only indicator showing a slight improvement.

Taking the largest hit was the net balance for orders or new business, which fell 7 percentage points to -1 per cent, ending five straight quarters of expansion.

The net balance is the difference between the share of firms with an increase and those with a decrease in an indicator, compared to the year-ago period. A positive net balance suggests expansion and a negative one, contraction.

The net balance for profits remained negative, holding steady at -7 per cent. Foreign firms were the only group with a positive profits net balance, at 17 per cent.

In contrast, local firms saw profits deteriorate with a net balance of -14 per cent, worsening from -3 per cent in the previous quarter’s survey.

The sales net balance improved 5 points to 11 per cent, which was also higher than the 4 per cent in the year ago period.

Both large and small firms saw improvement, as did foreign firms; local firms were the only group to see weakened sales.

Overall, firms remained upbeat about the next six months – October 2022 to March 2023 – though this optimism was in decline for the third straight quarter. The business prospects net balance was positive at 5 per cent, but down from 7 per cent in the previous survey.

Firms were more optimistic over business prospects in Singapore than in overseas markets, similar to the previous quarter’s survey. The survey consultants chalked this up to the better performance in domestic orders or new business compared to overseas, with the latter entering contraction in Q3.

OCBC chief economist Selena Ling said the survey results were not surprising given the aggressive rate hikes by the United States Federal Reserve, the European Central Bank and the Bank of England; the heightened recession risk in the European Union and United Kingdom; the sharp slowdown in China; and ongoing geopolitical tensions.

“Both the recent PMIs (purchasing managers indexes) and also business expectations surveys have indicated that business confidence about the new orders and export order pipeline have softened, with most manufacturers turning bearish in the next six months,” she added.

Still, the survey consultants expect fourth-quarter gross domestic product (GDP) growth to come in between 3.9 per cent and 4.7 per cent, on the basis that further expansion in services could counter a weakening manufacturing output.

As for full-year growth, the consultants expect this to be between 4.2 and 4.4 per cent, exceeding the official full-year growth forecast band of 3-4 per cent.

“This is in expectation that the Q3 2022 advance estimate would increase with September activities, and that higher consumption and inventory spending in Q4 2022 could occur prior to the GST (goods and services tax) increase in January 2023,” they said.

Though private-sector economists concurred that Singapore’s reopening could boost services growth, thus cushioning and offsetting some of the weakness in manufacturing, they were less optimistic in their Q4 and full-year growth forecasts.

Said OCBC’s Ling: “I’m a bit more cautious about the near-term manufacturing – especially electronics – outlook, which could sink further from Q4 2022 out to Q1 2023. This would potentially weigh on Singapore’s Q4 2022 GDP growth to sub-3 per cent and full-year 2022 GDP growth to around 3.7 per cent year-on-year.”

Maybank senior economist Chua Hak Bin was similarly less bullish than the survey consultants, expecting GDP to slide to between 1.5 and 2.5 per cent in the fourth quarter.

Separately, the survey also asked firms to name one country or economy with the best business prospects in their industry for the next 12 months. The most-cited country was Singapore, followed by Indonesia and Vietnam, with these top three accounting for 59 per cent of all responses.

Ling noted that regional growth prospects in Asean “look decent for now” give that many of the South-east Asian economies have started transitioning to endemic Covid and have reopened their economies.

“If China should also relax its zero-Covid strategy in early to mid-2023, this could give a further lift to regional growth prospects,” she added.

Singapore was viewed as the country with the best prospects by large and small firms alike, as well as by local firms. But for foreign firms, Vietnam came tops, with Singapore a joint second alongside China, Indonesia, Japan and the US.

Out of five sectors, Singapore was top for three: construction; transport and communication; and financial and business services sectors.

In contrast, Singapore fell out of all top three positions for the manufacturing sector, after being the second most-cited country in 2019 – the last time that firms were asked this question. The top spots are now held by the US; Vietnam; and China and Indonesia as joint third.

To this, Dr Chua said the stronger Singapore dollar and sharply higher interest rates have reduced Singapore’s attractiveness as a manufacturing hub.