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SMEs 'modestly upbeat for next 6 months'

Index by SBF and DP lists business-services and construction SMEs as most positive

MS CHEN: The mild optimism sounds the first positive notes for 2015


SMALL and medium-sized enterprises (SMEs) in Singapore are modestly optimistic about their prospects for Q4 2014 to early 2015, with firms in business services and in construction /engineering the most so.

The latest SME Index set up by the Singapore Business Federation (SBF) and DP Information Group measured the sentiments of Singapore SMEs to be at 55.5 points for the October 2014 to March 2015 period - 1.1 per cent higher than in the period prior.

A score above 50 in the index indicates that SMEs have a positive outlook for their businesses for the next six months.

The index is based on 3,000 interviews with SME owners and managers and the financial performance of SMEs. Five sectors were tracked - business services, commerce / trading, construction / engineering, manufacturing, and transport / storage.

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Overall turnover expectations rose to 5.71 points from 5.65 points in the last six-month period. The most optimistic sectors were business services and construction / engineering.

Conversely, softening global demand has hit the prospects of commerce / trading, manufacturing and transport / storage SMEs; these three sectors reported lower revenue expectations in the next six months.

Across the board, SMEs are adopting various strategies in response to the continuing tightness in the domestic labour market, high operating costs and a sluggish global economy.

The strong push by the government to raise productivity has boosted sentiment, especially among business-services SMEs (56.5 points, up from 54.8 points in the previous index). These firms are expecting more projects related to technology applications and consultancy to fuel their profit gains (5.86 points) in the next six months.

Business-services SMEs are also anticipating business expansion (6.56 points) in the next two quarters; they expect greater access to funding (5.49 points) and support for capital-investment initiatives (5.59 points).

Construction / engineering SMEs are positive despite domestic labour restraints, their optimism primarily driven by more construction works expected in the next six months. They are thus expecting business-expansion openings (6.26 points) to rise, contributing to profit expectations (5.60 points). Capital investment expectations hit a high of 5.69 points, with investments geared at improving productivity and the labour shortage.

Transport / storage firms are the only sector to report dampened expectations (55.0 points, from 56.6 points). Small and mid-sized players are facing increased competition from their larger compatriots; clients are demanding broader market reach, more sophisticated solutions and cost competitiveness.

SMEs in the business services and construction / engineering sectors expect business expansion, fuelled by higher turnover and profit expectations. In particular, there is interest in expansion plans into markets such as Indonesia, amid confidence in its newly elected president.

Overall, business expansion expectations remained tepid, registering a marginal 0.49 per cent increase to 6.17 points.

Capital investment is likely to continue in the next six months (5.53 points from 5.49 points last quarter) for all sectors except for commerce / trading. With hiring constraints persisting, there will be sustained interest in capital investment to improve productivity.

With access to financing hitting an overall five-year high at 5.44 points, investment plans will be facilitated and realised through the availability of credit in the market.

Hiring expectations remain high, with all five sectors showing plans to continue hiring at 5.62 points (up from 5.37 points last quarter).

Chen Yew Nah, the managing director of DP Information Group, said: "The moderate confidence led by business services and construction / engineering sectors are the first positive growth prospects to 2015.

"We believe that the modest growth was due to domestic constraints, and the weaker export sectors which affected manufacturing, commerce / trading and transport / logistics. Otherwise, we had anticipated better growth expectations across the board."

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