SME health worsens in Q2, but business owners still upbeat: OCBC
Vivienne Tay
THE health of small and medium-sized enterprises (SMEs) continued to worsen in the second quarter of 2023, but business owners are remaining positive.
In a report released on Friday (Jul 21), OCBC said its SME Index slipped further to 49.0 in Q2, contracting for the second straight quarter, from 49.9. This came as SME collections and payments fell by 11.3 per cent and 9.5 per cent year on year, respectively.
The index measures SME business health and performance. A reading above 50 indicates improved health, while one below 50 indicates a deterioration relative to the same period the year before.
“It is a story of two parts,” said OCBC head of global commercial banking Linus Goh.
He noted that domestic-oriented sectors such as building and construction, education and business services performed well in the first half of 2023.
However, weakness in externally-oriented sectors outweighed the expansion in domestic sectors in Q2, amid weakness in global trade and manufacturing.
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“Sluggish external demand continued to drag on the business activity of SMEs, especially in the ICT (information and communications technology), transport and logistics, and wholesale trade industries,” OCBC said.
The building and construction sector grew at a “healthy pace” at 51.3, lower than the 52.0 recorded in the previous quarter. OCBC noted that SMEs in this sector benefited from a steady pipeline of public and private sector construction projects.
The worst-performing sector was transport and logistics, which stood at 45.6, contracting further from 46.6 in Q1. This was most severe in the logistics and sea-transport segments, where demand for containers and vessels was weak amid a decline in global export volumes.
OCBC expects the SME index to continue easing in the third quarter, as economic uncertainties persist. Notably, prospects for the manufacturing and trade-related sectors “remain dim”, given the down cycle in the electronics and semiconductor segment.
Higher prices may also eat into the purchasing power of consumers before slowing in the second half of 2023. This could mean slower growth for the retail and food and beverage industries.
When it comes to business sentiment, about a third of business owners surveyed in June said there was an improvement in business performance compared with the three months before.
About 49 per cent said they expect their business to improve for the rest of 2023; 38 per cent said they do not expect any change. Around 12 per cent projected a decline in Q2, lower than the 17 per cent polled in Q1.
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