SMEs turn contractionary after eight consecutive quarters of expansion: OCBC
THE OCBC SME (small and medium-sized enterprises) Index turned contractionary for the first quarter of 2023 after eight consecutive quarters of expansion, based on data released by the bank on Thursday (Apr 20).
The SME Index came in at 49.9 for Q1 2023 amid slowing business momentum, down slightly from 50.2 in the previous quarter.
A reading above 50 indicates improved health, while below 50 indicates a deterioration relative to the same period a year ago.
While six sectors maintained expansionary readings, the overall index was weighed down by weaknesses in externally oriented industries, such as transport and logistics, wholesale trade, and information and communications technology (ICT).
Transport and logistics – with a reading of 46.4 – extended its downturn, which began in 2021. While the transport segment had a marginal ease in decline, SMEs in logistics continued to be impacted by weaker demand amid the slowdown in global trade, as well as higher energy costs.
The ICT sector remained contractionary, despite a modest improvement to 48.9 in Q1 2023 from 48.5 in Q4 2022. The expansion in information technology consultancy was outweighed by weaknesses in data processing and software development, and ICT manufacturing and sales, following the persistent global chip shortage and the cooling of the tech industry.
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Among the expansionary sectors, education registered the highest growth, inching up to 50.9 in Q1 2023 from 50.5 in the previous quarter. This was largely driven by the early childhood education segment, which had a quarter-on-quarter rise of 2.6 to 52.4 in Q1 2023.
Building and construction grew at a healthy pace to 52, with gains mostly from construction – similar to the previous quarter. OCBC noted that outlook for the segment “remains positive as demand is expected to be sustained”, although high manpower and raw material costs are key concerns.
Despite the slip into contractionary territory, SME business owners polled in March seem optimistic about business over the next six months. About 47 per cent of respondents expect business to improve, while 37 per cent expect their performance to remain unchanged.
In particular, 53 per cent of business owners in the transport and logistics sector – the worst performer of the quarter – anticipate an improvement in business prospects in the next two quarters.
The bank attributed the slowdown in business momentum to “continued weakness in global trade and manufacturing, along with persistent inflation”, outweighing gains from China’s reopening.
“We expect the OCBC SME Index to ease slightly in Q2 2023,” said Linus Goh, OCBC’s head of global commercial banking.
The index is derived using SME transactional data of over 100,000 OCBC SME customers in Singapore with annual sales turnover of up to S$30 million.
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