SMEs in contractionary mode for third straight quarter: OCBC
SMALL and medium-sized enterprises (SMEs) were in contractionary mode for the third consecutive quarter, according to the latest OCBC SME Index.
In a report released on Tuesday (Oct 17), OCBC said its SME Index registered a reading of 49.6 in Q3 – a slight improvement from 49 in Q2 – though still a contraction for the third straight quarter.
Against the backdrop of weak external demand, SME collections and payments fell by 5.7 per cent and 6.3 per cent respectively year on year.
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.
The overall performance of SMEs was dragged down by the extended slowdown in outward oriented industries such as transport and logistics, wholesale trade and information and communications technology (ICT).
Transport and logistics remained in contraction in Q3 2023 with a reading of 46.9, though this was an improvement from Q2’s 45.6.
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The sector’s overall growth was hampered by weak performances in the logistics and sea transport segments, due to the continued slump in the global shipping market and the contraction in Singapore’s trade volumes.
The ICT sector edged higher to 48.6 this quarter but remained contractionary. It was dragged down by the contraction in the data processing and software development segment, as tech companies cut costs to stay competitive. Despite weak global demand conditions, 53 per cent of SME business owners in ICT are optimistic about business conditions improving in the near term.
Consumer-driven industries, especially food and beverage (F&B) and education, were among the expansionary sectors. They continued to enjoy healthy growth, OCBC noted, buoyed by private consumption and a sustained recovery in international tourist arrivals.
F&B rose to 51.1 in Q3 2023, up from 50.1 in the previous quarter. The overall reading for the F&B industry was supported by a steady expansion in F&B services and F&B retail, with SMEs benefiting from the recovery of inbound tourism and large-scale meetings, incentives, conferences and exhibitions in Singapore, such as the Formula 1 Grand Prix.
Education extended its gains as well, edging higher to 51 from 50.8 in Q2. Growth was broad-based across the segments.
But labour constraints and hiring difficulties remain issues for SMEs in the sector. According to OCBC’s SME Business Outlook poll, 44 per cent of business owners in the education industry flagged manpower shortage as the biggest challenge in the six months.
The building and construction sector remained expansionary, though its growth moderated to 50.8 in Q3. OCBC noted that the sector’s growth has remained sanguine over the past quarters, on the back of steady public and private sector construction demand and improving manpower conditions.
However, the pickup in global construction activity has also resulted in SMEs being weighed down by higher prices of building materials and production costs.
The OCBC SME Index is expected to stay slightly contractionary for the rest of the year “as external headwinds persist,” said Linus Goh, OCBC’s head of global commercial banking.
Growth in the manufacturing and the trade-related sectors will be constrained by the slowdown in global electronics and decline in factory output, he said. On the other hand, consumer sectors will continue to lead the growth momentum for SMEs, driven by inbound tourism and seasonal spending.
On business sentiment, about half of business owners polled in OCBC’s latest SME Business Outlook in September expect their businesses to perform better in the next six months. About 38 per cent projected no change in performance, while 13 per cent believed they would see a decline.
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