Business sentiment continues to rise, firms most optimistic in 2 years

SINGAPORE — Business sentiment in the Republic has continued to improve for the third quarter of this year, led by the transportation and manufacturing sectors, with a key measure of confidence showing companies here at their most optimistic in two years.

The quarterly Business Optimism Index (BOI) rose to 3.58 percentage points for the third quarter from 2.66 percentage points for the second quarter, the Singapore Commercial Credit Bureau (SCCB), which polled 200 business owners and senior executives representing major industry sectors, said yesterday. It is also the second straight increase since the first quarter, when the index was at negative 1.22 percentage points, and the best reading since the third quarter of 2015.

SCCB chief executive Audrey Chia said: “The outlook among the business community has stayed relatively resilient despite the downside risks in the global economy.

“The improvements were supported mainly by the rise in optimism within the transportation and manufacturing sectors.

‘‘However, we are expecting sentiment to remain lukewarm in the coming months, given the pockets of weakness in both construction and financial sectors which have offset the improvements made.”

With all six business indicators — volume of sales, net profit, selling price, new orders, inventory and employment — in positive territory, the transportation sector emerged as the most optimistic, largely due to growth in the water transport segment.

The improvement in the transportation outlook marks a reversal from the previous quarter when only one indicator was expansionary, the SCCB said.

Boosted by the robust growth within the electronics and precision engineering segments, the manufacturing outlook continues to improve from the preceding quarter, as the number of expansionary indicators increased to three in the third quarter from two in the previous quarter, the SCCB said.

The outlook for the services sector has moderated slightly, with four indicators in positive territory, down from five in the second quarter, due to the slowdown in the food and beverage segment.

Owing to weakness in private building segment, sentiment within the construction sector remains muted, with only two indicators in positive territory. Likewise, the outlook for the financial services sector has stayed weak, with only two indicators showing improvement.

Ms Selena Ling, OCBC Bank’s head of treasury research and strategy, said the improved optimism in the manufacturing and transportation sectors are in line with the overall recovery theme, as these two sectors likely bottomed late last year.

“The improved local business sentiments are as per expectations as the fourth-quarter 2016 and the first-quarter 2017 gross domestic product growth have largely surprised on the upside, led by the recovery in global demand, especially for manufacturing and also the pick-up in regional trade activities … Downside risks are familiar — external challenges are geopolitical concerns, policy uncertainty over the Trump administration, and a sharper-than-expected slowdown in China, while domestic challenges remain the elevated cost and tight manpower structures,” she said.

Within the SCCB indicators, the selling price gauge fell into the contractionary zone, suggesting that pricing power remains weak, while the hiring intentions gauge continues to moderate in pace, Ms Ling noted.

“So I wouldn’t be caught off guard by the labour market conditions softening further,” she said.

CIMB Private Bank economist Song Seng Wun noted that the growth momentum is not broad-based, and several sectors, such as marine and offshore as well as retail continue to remain under pressure.

“Only a few sectors are holding up the numbers … How sustainable is this depends on external demand, such as the demand in the tech sector … The construction sector is much under control as the Government steps in with projects if private sector projects are not enough. The financial sector, however, depends on global growth,” he said.