Singapore SMEs stay expansionary in Q4 2025, though growth likely to ease in near term: OCBC

[SINGAPORE] The Republic’s small and medium-sized enterprises (SMEs) remained in expansion territory in the fourth quarter of 2025, noted the latest OCBC SME Index released on Tuesday (Jan 20).

Growth was broad-based but not uniform, with outward-oriented industries such as manufacturing, wholesale trade, and information and communications technology (ICT) outperforming the domestically oriented industries.

The quarterly index, which tracks the business health and performance of SMEs, edged up to 50.8 in Q4, from 50.5 in the third quarter. 

This marked the third consecutive quarter of expansion, with Q4 displaying the strongest pace of growth, said OCBC head of global commercial banking Elaine Heng at a press conference on Tuesday.

A reading above 50 on the index signals increased business activity compared with a year ago, while a score below 50 indicates a contraction.

The index is compiled from the transactional data of more than 100,000 OCBC SME customers in Singapore, each with annual revenues of up to S$30 million.

On a year-on-year (yoy) basis, overall collections in Q4 grew by 11.8 per cent, while payments rose by 10.7 per cent.

However, growth is expected to ease and move towards “neutrality” in the first quarter of 2026, noted Heng.

This is due to higher operating costs and stronger market competition in the region, while uncertainty from geopolitical conflict could also weigh on business confidence and demand.

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The impact of the US tariffs on semiconductors and pharmaceuticals has also not yet panned out, she added.

Outward-oriented industries lift performance

Like the previous quarter, SMEs in the manufacturing, ICT and wholesale trade sectors continued to be the main drivers of growth despite macroeconomic headwinds.

The ICT index inched up to 51.1 in Q4, driven by the segments of data processing and software development, as well as ICT manufacturing and sales. This was despite the sector being weighed down by the performance of businesses in IT consultancy.

The manufacturing index grew to 51, driven by expansions across all segments, particularly precision engineering and consumer products manufacturing. The sector’s collections and payments increased 2 per cent and 3 per cent yoy, respectively, indicating that SMEs in the industry continue to benefit from stable business activity.

Transport and logistics came off from a high base in Q4 2024, and recorded a rise to 50.1. This was accompanied by overall collections and payments increasing 8 per cent and 10 per cent yoy, respectively.

The sector’s growth was fuelled by the land transport segment, even though the sea transport and logistics segments remained contractionary.

Domestic sectors stay resilient

Meanwhile, the domestically oriented sectors of building and construction, retail and education stayed resilient in Q4 2025, against softer consumer demand and a tougher operating environment.

The building and construction index rose to 50.3, with overall collections and payments increasing by 18 per cent and 19 per cent yoy, respectively. The industry’s performance was largely driven by expansions in the construction segment, while the building materials segment remained in contraction mode.

Education improved to 50.3, with collections and payments increasing 4 per cent and 1 per cent yoy, respectively. Growth was led by expansions in early childhood education and business activities within training centres.

The food and beverage (F&B) sector was neutral at 50, with SMEs in the food-farming and food-manufacturing segments providing some lift to overall performance. Still, growth was muted due to weaker activity in the downstream value chain from the segments of F&B wholesale trade and F&B retail trade.

In contrast, both the business services and healthcare sectors registered contractions in Q4.

Outlook for 2026

Following 2025’s strong year of growth, OCBC noted that growth momentum is “likely to soften” in the near term.

Though most SMEs are not serving the US market directly, the bank flagged that ongoing policy unpredictability and economic uncertainty could weigh on business confidence.

“Even as several key sectors have also benefited from the artificial intelligence (AI) boom, it remains to be seen how sustainable such growth will be moving ahead,” it said.

Domestically, SMEs will face higher operating costs and stronger market competition from rising Chinese outbound foreign direct investment and increased Chinese presence in Asean, it added.

Still, OCBC highlighted that there are opportunities for SMEs that position themselves to expand into external markets or leverage cross-border initiatives such as the Johor-Singapore Special Economic Zone.

Businesses can also tap AI and digital transformation to manage rising costs and enhance competitiveness.

A separate business outlook poll by OCBC revealed that nearly one in two business owners expect the outlook for the next six months to improve.

Meanwhile, 37 per cent of business owners expect their business to remain the same, while 15 per cent believe it will worsen.

The bank noted that SMEs in the outward-oriented sectors were more optimistic, compared with those in the domestic sectors, potentially driven by the sustained momentum in demand in Q4 2025.

Stiff market competition was cited by business owners as their top concern in the next six months (36 per cent), followed by geopolitical uncertainties (20 per cent).

Meanwhile, cost pressures and manpower constraints were a bigger concern for those in the domestically oriented sectors, with OCBC noting a 10 per cent increase in the total wage bill of SMEs in these industries in Q4.

The poll was based on 700 responses collected during the survey period in the month of December 2025.