Singapore firms less pessimistic about H2 prospects: BT-SUSS poll

SINGAPORE firms are feeling less pessimistic about business prospects for the next six months compared to the previous quarter’s outlook, even though orders continued to decline in the second quarter, the latest Business Times-Singapore University of Social Sciences (BT-SUSS) Business Climate Survey has found.

Business performance stabilised in the second quarter. Of the three performance indicators monitored, the net balances for profits and sales were unchanged compared to a quarter ago. Only the net balance for orders or new business took a hit, sinking 17 percentage points to -38 per cent.

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 sales stood at -25 per cent in the second quarter, unchanged from a quarter ago. This was the third straight quarter of sales contraction, after six consecutive months of expansion.

The profits net balance nudged down one percentage point to -38 per cent. Profit contraction improved for foreign firms but worsened for local and small firms.

Modest improvements

Overall, pessimism has eased in the second quarter and businesses are less gloomy about prospects for the rest of the year. The net balance for business prospects rose seven percentage points to -18 per cent. Small firms were the only group with no change in their glum outlook.

OCBC chief economist Selena Ling noted that the survey findings were in line with the recent business expectations surveys by the Economic Development Board and the Department of Statistics, which showed that manufacturing and services firms were more upbeat about business conditions in the next six months.

The results are also consistent with the second-quarter growth estimates, which showed that Singapore narrowly avoided a technical recession, said Maybank co-head of macro research Chua Hak Bin.

The latest manufacturing and electronics Purchasing Managers’ Index data also showed modest improvements in July, though still in contraction territory, and these show signs that Singapore’s economy may have bottomed out in the first half of the year, OCBC’s Ling said.

But while the second half of the year may see better days for the services sector, “it is unlikely to be a smooth-sailing trajectory, and it would be dependent on China rolling out additional and more aggressive policy stimulus, as well as no escalation of geopolitical tensions, which could derail the soft landing scenario envisaged for major economies,” she added.

The survey consultants expect third-quarter gross domestic product (GDP) growth to be between 1.1 per cent and 1.8 per cent year on year, in view of China’s implementation of further stimulus measures and signs of the manufacturing sector here reaching the bottom of its contractionary mode.

The consultants’ projection was in line with DBS’ expectations of a gradual growth recovery, said DBS economist Chua Han Teng. “We agree that there are tentative signs of the manufacturing contraction bottoming (out), and electronics is a key area to watch.”

Besides manufacturing, hospitality-related services sectors such as accommodation, as well as food and beverage services should enjoy tailwinds from the ongoing normalisation in international travel amid returning Chinese tourists, and large-scale events such as the Singapore Formula One night race, he added.

Maybank’s Dr Chua also expects growth to strengthen in the third quarter, but was less optimistic than the consultants. He expects third-quarter growth to be between 0.8 per cent and 1.3 per cent.

Star performer

“Manufacturing and exports appear to have turned the corner, while services growth will likely remain resilient,” said Dr Chua. “There are tentative signs that China’s reopening is starting to provide some modest boost to exports, while China visitor arrivals have accelerated in recent months.”

The transport and communications sector was named the “star performer” for the third straight quarter, clinching 13 out of the 20 top spots. These include top positions in all three performance indicators. The sector was also the most optimistic about business prospects in the next six months.

Small firms in the manufacturing sector saw the best performance in sales and profits, while small construction firms recorded the best results in orders or new business.

Separately, firms were asked if they expect to see higher, lower or unchanged sales in 2023, compared to a year ago. Overall, the share of firms expecting a decline in sales was higher than those expecting sales to rise, and this resulted in a net balance of -19 per cent.

When the question was posted in last year’s survey, the net balance for sales growth was 21 per cent, suggesting that sales have contracted significantly in 2023, noted the survey consultants.

Overall, one in three firms expects higher sales this year, while more than half of the businesses predicted higher sales in 2022.

Among the five sectors surveyed, transport and communication was the only sector to have a positive net balance of 21 per cent, with the largest proportion of firms expecting sales to go up this year. In contrast, all other sectors recorded negative net balances for sales growth prospects.

The worst performance was seen by the commerce sector, which had the largest proportion of firms that expect to see sales declines. It recorded a net balance of -45 per cent.