Singapore SMEs enter contraction territory in Q1 2025 amid global uncertainty: OCBC
This follows three consecutive quarters of expansion, which started in Q2 2024
[SINGAPORE] The Republic’s small and medium-sized enterprises (SMEs) slipped into contractionary territory in Q1 2025 for the first time since Q1 2024, the latest OCBC SME Index report released on Wednesday (Apr 16) indicated.
The quarterly index, which tracks the business health and performance of SMEs, fell slightly from 50.7 in Q4 2024 to 49.9.
This follows three consecutive quarters of expansion, which began in Q2 2024. A score above 50 reflects improved business health, while scores below 50 indicate deterioration.
This downward shift in SME performance is due to a weakening outlook, now exacerbated by tariff-driven global uncertainties, said the lender.
The report noted that both a slowing of global trade flows and a weaker outlook on the US dollar, will hurt local SMEs in outward-oriented sectors. These include sectors such as information and communications technology (ICT), transport and logistics and wholesale trade.
These industries posted an average of more than 40 per cent of collections made up by overseas customers, OCBC said, adding that of which 7 per cent are directly received from US-based payers. The lender noted that the collections are mostly denominated in US dollars.
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Overall collections grew by 1.7 per cent on year, while payments remained flat with no increase.
Overall, the majority of SME owners surveyed by OCBC did not report a worsened outlook compared with the previous quarter.
Among the 1,000 business owners surveyed, 41 per cent felt that business conditions were the same, 36 per cent saw improvements, while 23 per cent felt that conditions had worsened.
Business owners from the education, retail, and food and beverage sectors had the weakest outlook; almost 3 in 4 owners said that conditions had stayed the same or worsened. In export-oriented industries, more than 60 per cent of owners posted such responses.
As uncertainty over US President Donald Trump’s tariffs continues to dampen the global economic outlook, business owners from the transport and logistics, business services and wholesale trade industries responded that they would be the most affected by geopolitical uncertainties and market competition in the next six months.
Externally oriented industries
SMEs in externally oriented industries experienced contractions in the quarter, the report said.
The manufacturing sector contracted from 50.5 to 49.8, due to weakness in the precision engineering and consumer products segments. However, SMEs in the electronics and semiconductors segment recorded a “healthy pace of growth” from resilient external demand.
Collections in the sector increased by 37.1 per cent on the year, while payments grew 18.9 per cent, driven by strong overseas growth.
In the transport and logistics industry, growth retraced from 51.7 in the previous quarter to 49.5. This was due to weakness in the sea transport and land transport segments, which will continue to be affected by weaker trade flows in the upcoming quarter, OCBC said.
The ICT sector continued its contractionary trend from the previous quarter, falling from 49.4 to 49.2 in Q1 2025. This marked the sector’s eleventh consecutive contractionary quarter, OCBC noted.
The reading was weighed down particularly by weaker growth in the data processing and software development segment and the IT consultancy segment.
Domestic-facing sectors
Neither were domestic-facing sectors spared. The healthcare sector inched up slightly but remained in contraction, rising to 49.8 from 49.7. Wage concerns continue to face SMEs in this sector, which reported a 15.5 per cent wage bill increase in Q1 2025.
Business services dropped 0.4 point to 49.6 in first quarter of 2025, with significant declines in collections (15.1 per cent) and payments (15.9 per cent). The sector was weighed down by weaker growth in the business consultancy segment, which came in at 49.
F&B fell from 51.1 in Q4 2024 to 49.6 in Q1 2025 – with the largest decline faced by the F&B services segment at 48.3, down from 50.6 in the previous quarter. Meanwhile, F&B wholesale trade SMEs experienced healthy growth, scoring 51.8 on the index.
In the education sector, SMEs experienced contraction after four consecutive quarters of expansion, with the index falling below 50 to 49.6 for the first time since Q4 2023.
Building and construction SMEs inched lower to 49.5 in the first quarter of 2025, from 50.2 in Q4 2024.
Domestic-facing SMEs are likely to experience impact from the tariffs, due to higher costs and inflationary pressures, said OCBC.
The lender added: “Businesses may consequently face challenges in maintaining their competitiveness and find themselves operating in a much more cautious business environment.”
However, it noted that further regional collaboration, including the integration of Asean economies through initiatives such as the Johor-Singapore Special Economic Zone, could fuel cross border commerce and new business ventures.
Trends in accessing green financing for sustainable development, as well as the growth of digital trade platforms, could present opportunities for SMEs to capture, the lender said.
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