SMEs in expansion mode for 6th straight quarter: OCBC

DESPITE continued inflation fuelled by the Ukraine conflict and lockdowns in China, Singapore’s easing of Covid-19 restrictions continued to drive growth for small and medium-sized enterprises (SMEs) in the second quarter of 2022, according to the latest OCBC SME Index.

All sectors were in expansionary territory, as 4 came out of contraction: building and construction; food and beverage (F&B); education; and retail.

The overall Q2 2022 Index came in at a reading of 52, up from 50.5 in the previous quarter and marking 6 consecutive quarters of expansion. A reading above 50 indicates improved activity, while one below 50 indicates a deterioration relative to the same period a year ago.

“We expect the index to remain expansionary in Q3 2022 though global headwinds persist, with growing inflationary pressures and supply side challenges in the region,” said Linus Goh, OCBC’s head of global commercial banking.

Collections grew by 2 per cent in the quarter, with better performance across all industries. The quarter’s gross domestic product (GDP) Nowcast – which estimates GDP growth using the latest index – was 5.8 per cent, up from the 3.7 per cent growth registered in Q1 2022.

The latest Nowcast is “directionally aligned” with the pick-up in the consensus forecast of 4.8 per cent in the Monetary Authority of Singapore’s survey of professional forecasters in June, noted OCBC’s report.

All sectors were in expansionary territory in Q2, and had improved readings compared to the previous quarter.

Wholesale trade, transport, logistics and manufacturing continued to see growth on the back of strong cross-border trade.

Transport and logistics continued a 6-quarter run of expansion, led by a consistently strong showing in the logistics sub-sector, which registered 54.2. Sea and land transport saw a pick-up over the quarter, helped by healthy cross-border trade, while land transport turned expansionary with an improvement to 50.3.

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Manufacturing picked up to 52.5 compared to 51 in the previous quarter, with a 14 per cent increase in year on year collections, led by consumer products. The precision engineering sub-sector also registered a healthy 52.2 with a 12 per cent increase in year on year collections.

While the electronics and semiconductors sub-sector slipped into contractionary territory at 49.6, it “should see an improvement in the second half of the year”, the bank added.

Meanwhile, the easing of dine-in restrictions and the opening of travel borders benefitted F&B and business services.

The F&B industry finally emerged from contraction to 51.5, up from 47.7 the previous quarter, as the lifting of safe distancing measures was met with pent-up demand from larger dining events as well as stronger visitor traffic.

Readings for F&B retail and wholesale trade also improved, but these sub-sectors were “less optimistic due to rising food prices and supply chain disruptions”, said the report, with F&B retail remaining solidly in contraction at 48.7.

The continued momentum in digitalisation drove healthy growth in information and communications technology (ICT), with collections up 25 per cent.

Education edged out of contraction to 50.1 from 49 in the previous quarter on the back of a pick-up in early childhood education and recreation classes, with the lifting of Covid restrictions and a higher proportion of parents returning to work at the office. While training centres were flat at 50.1, OCBC expects the momentum to improve in the coming quarters, “especially for foreign labour with the reopening of borders”.

Building and construction reached 51.2, up from 49.9 last quarter, with the construction sub-sector’s recovery spurred by some relief in the availability of labour thanks to regional border reopening.

The investment sub-sector was buoyed by increases in property prices and rental yields as buyers overcame the initial uncertainty from additional property cooling measures introduced in December 2021. However, higher commodity and energy prices as well as supply chain disruptions continue to weigh down the industry.

Healthcare continued flat lining at 50.4, caused primarily by weaker performance of the distributors. Distributor collections fell 18 per cent from the high in 2021 that had been led by Covid-related supplies, with this fall possibly signalling “a reversion of demand to pre-pandemic levels”.

The OCBC SME Index is derived from the bank’s transaction data of over 100,000 SME customers in Singapore with annual sales turnover of up to S$30 million. The index also uses indicators such as collections, payments, cash flow and operating transactions of the SMEs.