Business sentiment dips in Q4, but outlook stays positive

Business sentiment  dips in Q4, but 
      outlook stays positive
The manufacturing, services and wholesale sectors emerged as the most optimistic sectors in the SCCB’s latest survey. TODAY file photo
Published: 4:00 AM, September 12, 2017

SINGAPORE — Business sentiment among local companies remains upbeat, even as the Business Optimism Index (BOI) by the Singapore Commercial Credit Bureau (SCCB) fell for the final quarter of this year. Analysts cautioned that while the economic recovery has been led by external factors, namely manufacturing and exports, it was not broad-based.

The BOI declined to 2.60 percentage points in the fourth quarter of this year from 3.58 percentage points in the previous quarter.

Compared to the October-December period last year, the index slipped from 2.87 percentage points to 2.60 percentage points in the last three months of this year.

A quarterly survey of professional forecasters conducted by the Monetary Authority of Singapore earlier this month projected Singapore’s gross domestic product (GDP) to grow by 2.5 per cent this year, unchanged from the previous forecast.

Meanwhile, the Ministry of Trade and Industry (MTI) has narrowed its GDP growth forecast for the year to between 2.0 and 3.0 per cent.

The manufacturing, services and wholesale sectors emerged as the most optimistic sectors in the SCCB’s latest survey. However, due to prolonged deterioration in both private and public sector building activities, sentiment within the construction sector remained muted, according to SCCB. The quarterly survey polls 200 business owners and senior executives representing major industry sectors, and is an indicator of business expectations.

“Despite the optimism seen in the manufacturing and services sectors, a lacklustre construction demand in terms of contracts awarded will likely persist due primarily to a weak demand for private industrial and commercial projects,” said Ms Audrey Chia, SCCB’s chief executive officer.

“We expect that the overall outlook will remain stable for the rest of the year, given that Singapore’s economy will continue to be supported by robust public finances and the Government’s fiscal buffers to further diversify the country’s economic base and keep negative shocks at bay in the near term,” she added.

According to SCCB, four of six indicators — sales volume, net profits, inventory and employment levels — have moderated downwards from the previous quarter.

On a year-on-year basis, two of six indicators declined in the fourth quarter, namely net profits and inventory levels.

“This suggests that optimism for Singapore’s sequential growth upside going into the fourth quarter and beyond should not be unbridled, notwithstanding the recent upbeat tone in other leading indicators such as the manufacturing, electronics and whole economy Purchasing Managers’ Index,” said Ms Selena Ling, OCBC Bank’s head of treasury research and strategy.

Economists said the manufacturing sectors’ sustained momentum is led by the electronics and precision engineering sectors with healthy new orders.

“The effects of external sector recoveries are seeping in with the manufacturing tied in to the export demand doing well. However, the recovery is not broad-based, and the headline numbers are likely to be lifted by certain sectors,” said CIMB Private Bank economist, Mr Song Seng Wun.

Mr Francis Tan, UOB economist, agreed that the latest BOI data and the second quarter economic performance data released by MTI point to improvements in Singapore’s economy. He remained cautious, however, as GDP growth in the second quarter was from a low base in the corresponding period last year.

“Growth was not broad-based. For instance, within manufacturing, only the electronics and precision engineering clusters were doing well. The other clusters were either improving at a slow pace or saw contraction,” he added, noting that growth in the services sector was lower compared with the longer-term average.

In addition, the labour market remained weak, with the number of job vacancies less than the number of unemployed.