Singapore manufacturers’ sentiment worsens; services sector mood moderates: surveys

FOR the third consecutive quarter, Singapore manufacturers remain negative about business conditions in the next six months, while positive sentiment in the services sector has moderated, according to separate quarterly surveys on Tuesday (Jan 31).

A net weighted balance of 25 per cent of manufacturers expect a less favourable business situation from January to June 2023, worsening from the previous quarterly survey, where 20 per cent were pessimistic, according to the latest release from the Economic Development Board (EDB).

For services firms, a net weighted balance of 3 per cent are optimistic, down from 9 per cent previously, found a similar survey by the Department of Statistics (Singstat).

The net weighted balance is the difference between the weighted shares of positive and negative responses, with a positive figure indicating more optimism than pessimism.

“It is unsurprising that both the manufacturing and services sectors have turned more cautious,” said OCBC chief economist Selena Ling, noting growing global recession worries, persistently high inflationary pressures, aggressive monetary policy tightening and geopolitical tensions.

The sectors recorded “the poorest readings since September and March 2020 respectively”, she added.

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Among manufacturers, a weighted 6 per cent expected improved conditions ahead, while 31 per cent expected conditions to worsen.

Most clusters were pessimistic about business conditions in the next six months, with transport engineering bucking the trend.

The aerospace segment, which expects higher demand for aircraft maintenance, repair and overhaul jobs on continued travel recovery, and the marine and offshore engineering segment, which is seeing continued pick-up in global oil and gas activities and more ship-repair jobs and offshore conversion projects, are optimistic, EDB said.

Manufacturers in the land segment were pessimistic, however.

All other clusters were negative, with almost all segments downbeat, except the neutral petrochemicals segment in chemicals. Higher operating costs and a weaker macroeconomic environment were common concerns.

Semiconductor market weakness and US tech export restrictions continue to weigh on electronics and precision engineering, respectively.

Echoing sentiments for the six-month outlook, a net weighted 13 per cent of manufacturers expect lower output in the next three months.

In terms of hiring, the majority of firms expect employment level in the first quarter of 2023 to remain similar to the fourth quarter of 2022, EDB said.

Overall, a net weighted balance of 3 per cent of manufacturers expect a decline in hiring activities for the first three months of the year, compared to the previous quarter. The electronics and precision engineering clusters are the least optimistic.

In the services industry, 19 per cent of firms were upbeat about business conditions in the first half of 2023, while 16 per cent foresee deteriorating business conditions.

Most industries were upbeat on the next six months’ business outlook, excepting wholesale trade, food and beverage (F&B) services and information and communication.

Noting the positivity in the accommodation industry, Singstat said that hoteliers cited the upswing of international travel and increased tourist arrivals in Singapore as reasons for optimism.

On F&B, Singstat noted that the previous period, July to December 2022, coincided with the year-end holiday and the festive season.

Maybank analyst Chua Hak Bin said that higher inflation and interest rates may also be hurting consumer finances and F&B spending. “The GST (goods and services tax) hike and higher operating costs will likely continue to dampen sentiments in F&B,” he added. “More Singaporeans could also be spending more abroad as borders reopen.”

On the information and communication segment, he attributed worsening sentiment to “the crypto meltdown and drying up of funding for tech start-ups”.

With a net weighted balance of 3 per cent of firms, the services sector foresees higher revenue for the January to March period compared with October to December.

On employment, the services sector expects an increase in hiring activity for the period, with a net weighted balance of 5 per cent. Hoteliers expect to raise headcounts to cope with increased business from tourists, Singstat said.

Chua said: “Business expectations will likely diverge more sharply in 2023, with manufacturing in recession while the reopening sectors – like hospitality, aviation and leisure – continue to expand at a healthy clip.” Chua and Ling agreed that China’s reopening will benefit Singapore’s economy.

But Ling warned that the return of China may not fully offset the downside growth risks arising from the economic slowdown in the US, European Union and UK, highlighting “the recent job shedding and bearish business guidance” in big tech.

“Japan and the Netherlands joining US efforts to restrict semiconductor equipment exports to China is also likely to pose additional hurdles,” she cautioned.

She expects weak business sentiments to sustain, “until there is greater clarity on whether easing inflation will allow the Fed to pause on rate hikes, or even start to cut interest rates in the latter part of this year; if China’s reopening will see increased demand for goods and services imports; and if the 2023 Budget on Feb 14 will see any ‘goodies’ to help the corporates, especially SMEs (small and medium-sized enterprises), to thrive in this challenging environment”.