Singapore firms more pessimistic after poorer Q1 performance: survey

SINGAPORE’S firms grew more pessimistic as business conditions weakened further in the first quarter of 2023, the latest quarterly Business Times-Singapore University of Social Sciences (BT-SUSS) Business Climate Survey has found.

In Q1, all three business performance indicators deteriorated from a quarter ago. The net balance for sales took the biggest hit, tumbling 20 percentage points to -25 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 profits dropped 19 percentage points to -37 per cent, worsening at a faster rate than a quarter ago. Foreign firms were the only group which “escaped further spread of contracting profits”, said the survey consultants.

The orders or new business net balance also declined further, though at a much slower rate. It fell five percentage points to -21 per cent. This was primarily due to weaker net balances for small and foreign firms.

Overall, businesses have become more pessimistic about the next six months, with prospects for their overseas business dimmer than for their Singapore activities. The business prospects net balance fell 14 percentage points to -25 per cent.

“The survey’s results were unsurprising given the challenging global economic headwinds faced by Singapore’s economy from tight monetary policy in advanced economies and lingering geopolitical tensions,” said DBS Group Research economist Chua Han Teng.

He noted that the results were consistent with the deceleration in Singapore’s first-quarter real gross domestic product (GDP) growth, which advance estimates put at 0.1 per cent year on year.

Rhea Hernando, senior researcher of the Apec Policy Support Unit, said the results also reflect how business conditions are taking a turn for the worse globally: “Market sentiment is turning negative, a reaction to the financial turmoil triggered by a few banks in the United States and European Union.”

Nevertheless, the survey consultants still expect Q2 GDP growth to be between 1.4 per cent and 2.6 per cent, on the basis of China’s reopening and an early recovery in the electronics industry. “This indicates a weaker economy than a year ago, but a stronger growth than in the previous quarter,” they added.

Chua is similarly optimistic about China’s reopening, believing that it will be a “key factor to watch as an offset to challenges from an uncertain global climate”.

He cited a recent Economic Development Board business expectations survey in which manufacturers were slightly more positive about the outlook in the next six months, having cited China’s reopening as a factor that would support demand.

“We think a more visible boost from China’s recovery to Singapore’s exports and also tourism-linked sectors is likely to be felt in the second half of 2023,” he added.

But other economists were not so optimistic. UOB senior economist Alvin Liew expects no year-on-year growth, or a quarter-on-quarter decline of 0.2 per cent, in the second quarter. “We believe that there is a substantial risk Singapore may enter into a technical recession in the first half of 2023, largely driven by the weakness in manufacturing.”

Calling the BT-SUSS consultants’ Q2 outlook “far too optimistic”, Maybank economist Dr Chua Hak Bin noted that the boost provided by China’s reopening has been “rather limited” so far. Unlike the survey authors, he believes the electronics slump will continue into the second quarter.

“Even a recovery in the second half of the year is looking less certain given tightening global credit and lending conditions,” said Dr Chua, who expects Q2 growth to be between 0.5 and 1 per cent.

According to the survey, the transport and communications sector maintained its “star performer” status in the first quarter, ranking top for most indicators across different firm types: 16 out of 20 such top spots. The other four spots were taken by the construction sector.

This came as no surprise to Liew, who cited industrial production data showing that the transport engineering cluster has been recording robust growth for much of last year and in 2023 to date.

Separately, firms were asked about the likely impact of four factors – top material input; manpower; transport or shipping; and rental or property taxes – on operating costs in 2023.

For three of the four factors, a majority of firms expected price increases to push their costs up by more than 5 per cent. This was seen as mostly likely for manpower costs, with 64.5 per cent of firms expecting an impact of that magnitude, followed by top material input (57.9 per cent) and transport or shipping (52.9 per cent).

As for rental or property taxes, 40.5 per cent of firms thought they would push prices up by more than 5 per cent, with another 31.4 per cent expecting the impact on costs to be between 3 and 5 per cent.

DBS’ Chua said the results reflect the tight domestic labour market conditions in early 2023, “with businesses likely to pass through some of these costs to consumers in the near-term”.

Noting that Singapore’s unemployment rates continued to fall in the first quarter, UOB’s Liew said: “The tightness in the Singapore labour market will likely imply continued upside pressure on manpower costs for companies operating in Singapore.”

But shipping and transport costs should become less of an issue, said Maybank’s Dr Chua, given that freight rates have fallen back to pre-pandemic levels due to waning trade volumes and weakening external demand.