Singapore firms’ optimism about business prospects reach two-year high in Q2: BT-SUSS poll

SINGAPORE companies’ optimism about the next six months reached a two-year high in the second quarter of 2024, amid an improvement in the business environment, a quarterly survey has showed.

The net balance for business prospects rose to 8 per cent in Q2, a 5-point gain over the previous quarter, according to the latest Business Times-Singapore University of Social Sciences (BT-SUSS) Business Climate Survey.

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, with a positive net balance suggesting expansion.

Net balances for the survey’s other indicators – sales, profits, as well as orders and new business – also improved, but remained in negative territory.

The net balance in sales showed the strongest improvement, rising 16 points to minus 2 per cent.

DBS economist Chua Han Teng said the results are consistent with the improved sentiment among manufacturing and services companies in the latest quarterly surveys by the Economic Development Board and the Singapore Department of Statistics.

Doing better overseas

But survey consultant Chow Kit Boey noted that in contrast to recent quarters, companies’ overseas results in Q2 were stronger than overall performance, meaning a comparatively weaker performance in Singapore.

“The implication is that overseas markets are recovering and Singapore activities abroad could propel Singapore growth more strongly,” she said.

Overseas sales had a net balance of 2 per cent, even though the overall sales net balance was minus 2 per cent. Similarly, the net balance was minus 1 per cent for overseas orders and new business, compared with minus 9 per cent overall for that indicator.

For overseas business prospects, the net balance rose to 16 per cent, compared with 8 per cent for overall business prospects.

The greater optimism for overseas prospects may be because the external-oriented sector of manufacturing, especially electronics, has been improving amid the global electronics recovery and surge in AI-related demand, said OCBC chief economist Selena Ling.

“For Singapore, the cooling labour market conditions and anticipated wage growth may have restrained private consumption while high business costs likely remains a bugbear for local companies,” she said.

In Q2, large firms did better than small ones, and local firms did better than foreign ones.

This is likely because large local firms have heeded the call to internationalise and are better positioned to benefit from the uptick in global demand, said Ling.

Maybank economist Brian Lee said that large firms may be less exposed to weakness in the domestic market than small firms, given that their sales are more likely to be geographically diversified.

Bucking the trend in Q2, small firms performed worse than a quarter ago, with net balances slipping further into contraction for their sales, profits, as well as orders and new business.

This could be because small firms are still struggling with the high cost of doing business and may have less economies of scale or market share to leverage on, Ling said.

Sectoral differences

The transport and communications sector emerged as the star performer in Q2, with the highest net balances for both sales as well as orders and new business. It also shared the top spot in profits with the financial and business services sector.

Maybank’s Lee said this is likely because transport and wholesale trade activity has been picking up on the back of a rebound in regional trade volumes; the recovery in travel and tourism; and elevated freight rates caused by the Red Sea crisis.

The construction sector was the most optimistic about business prospects, which Lee said could be due to the robust pipeline of public housing and infrastructure projects.

Less optimistic were the manufacturing and finance sectors. Lee said manufacturing sentiment could reflect the uneven recovery in exports – particularly in semiconductors and pharmaceuticals – while the finance sector may be weighed down by sluggish credit demand due to elevated borrowing costs.

However, OCBC’s Ling expects manufacturing to revert to positive growth by the second half of 2024, and achieve 1.8 per cent growth for the full year.

Regression analysis of the survey results also provides forecasts of Singapore’s gross domestic product growth. Chow estimates that the economy could grow 3.1 to 3.8 per cent in Q3, with full-year growth coming in at 3.2 to 3.9 per cent.

This is higher than the Ministry of Trade and Industry’s official forecast range of 1 to 3 per cent. Last month, the Monetary Authority of Singapore estimated that growth would come in closer to its potential rate of 2 to 3 per cent.

Lee expects growth to strengthen further in H2 as the recovery broadens. He recently raised his full-year outlook to 3 per cent.

“The economy will be buttressed by a broadening electronics recovery and easing interest rates, helping to offset slower services growth as the boost from revenge spending and travel dissipates,” he said.

DBS’ Chua said that his full-year forecast, at 2.7 per cent, is also more conservative than Chow’s. “We remain cautious about global downside risks, including lingering geopolitical tensions that could disrupt supply chains, China’s uneven economic growth, and financial market volatility resulting from shifts in global monetary policy.”