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SMEs see lower growth momentum in H1 2015

Confidence in construction/engineering hardest hit as the sector's score slips to 54.2 from 56.0 previously

The retail/food and beverage sector makes its debut on the index with an optimistic outlook of 54.7.


SMALL and medium-sized enterprises (SMEs) have signalled lower growth momentum and a more conservative outlook in the coming six months, with the construction sector emerging with the biggest slide.

According to the Singapore Business Federation and DP information Group, the overall index of their SBF-DP SME Index has pulled back to 54.4 in this quarter from 55.5 in the previous quarter. A score of above 50 of this six-month forward-looking index indicates a positive outlook.

Separately, the retail/food and beverage (F&B) sector debuted on the index with an optimistic outlook of 54.7, possibly attributed to consumer spending during the festive season. The retail/F&B sector accounts for about 7 per cent of Singapore's GDP.

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While all the sectors featured a positive, albeit more conservative outlook compared with the previous quarter, confidence in the construction/engineering sector was the hardest hit, pulling back to 54.2 from 56.0. This is in part due to slowing real estate activities in the private sector and the softening of the property market. Firms are also dogged by high training fees, which has resulted in some of them putting plans for capital investment on hold.

SMEs in this sector are also less optimistic about turnover expectations (5.74 from 5.86 last quarter) and profitability expectations (5.50 from 5.60).

Meanwhile, SMEs in general are expecting some impact from the recent developments in the global economic environment, including the fall in oil prices, slowdown of the Chinese economy, and market volatility.

The drop in oil prices, for instance, has led SMEs in the transport/storage sector to be more positive about profits. The profitability expectation of this sector for the coming six months is 5.50, up from 5.35 last quarter.

This helped pull overall profitability expectations up, to 5.54 from 5.52 previously.

Elsewhere, the festive season and increased trading buoyed turnover expectations among SMEs in the commerce/trading (5.67 from 5.62) and transport/storage SMEs (5.66 from 5.52).

This, combined with the effects of lower oil prices - induced higher consumption from more disposable income and lower transport costs, is likely to be what spurred the increase in overall turnover expectations to 5.74, from 5.71 last quarter.

SMES are also less optimistic on both the capital investment (5.47 from 5.53) and hiring expectation (5.52 from 5.62) fronts.

"While the economic conditions are still soft, it is prudent for SMEs to continue investing in capital appropriately for productivity improvement," said Chen Yew Nah, managing director of DP Information Group.

"Instead of deferring investment and growth plans amidst a lukewarm business outlook, SMEs should take advantage of present opportunities in order to stay ahead and seek growth in the long run."

Overall, business expansion expectations saw a slight decline to 6.10 from 6.17 last quarter. However, more SMEs in the transport/storage and manufacturing sectors are looking to expand their businesses in the next six months despite weaker market sentiment.

Opportunities present themselves in regions such as Indonesia and India where reforms are on-going.

While the Singapore economy continues with its restructuring and SMEs remain conservative in their business outlook, there will be opportunities in 2015 that SMEs can tap, said Ho Meng Kit, chief executive of the Singapore Business Federation.

"For example, the decline in oil prices is expected to benefit our SMEs in general, except for those in the oil and gas and related sectors," he said. "The decline in oil prices lowers business costs and returns more spending power to consumers due to lower energy and petrol prices. This is good for many businesses as they can use the opportunity to price their goods and services more competitively."