Business sentiment mixed as restructuring continues to hurt

SINGAPORE — The global economy may be on the mend, but not all businesses are reaping the benefits.

Many small and medium firms, particularly those in the construction and business service industries that tend to be more dependent on the domestic economy, are uncertain of their outlook because of local constraints. This is in contrast to sectors such as manufacturing and transport, which expect to benefit from the improving external conditions.

This was the general sentiment of the latest SME Index, which was jointly released by the Singapore Business Federation and DP Information yesterday, following interviews with 3,000 SME owners and managers.

“SMEs linked to the global marketplace are becoming more optimistic … Singapore is one of the most open economies in the world, so our SMEs will benefit as trade growth picks up this year and during 2015,” DP Information’s managing director Chen Yew Nah said. “Meanwhile, those linked to the domestic economy are tempering their outlook.”

With the global economy projected by the World Bank to grow by 3.2 per cent this year after last year’s 2.4 per cent, respondents in the manufacturing as well as transport and storage sectors were the most optimistic about their overall performance for the six months between April and September.

The index score for manufacturing increased to 54.9 from 54.8 in the last survey, while that for transport and storage rose to 54.3 from 54.2, the survey showed. The two sectors are also the only ones that expect better turnover and profitability during the period, the index showed.

As for the other three sectors surveyed — business services, commerce and trading, construction and engineering — the index showed overall sentiment had deteriorated, with respondents citing domestic constraints such as manpower crunch and escalating business costs.

These local constraints were highlighted last week by the Monetary Authority of Singapore (MAS) in its latest policy statement, which cautioned that wage pressures were likely to persist amid a tight labour market, with firms expected to pass on business costs to consumers.

Meanwhile, the index yesterday also showed businesses in all surveyed sectors are expecting to cut back on hiring over the next few months.

Said SBF’s chief operating officer Victor Tay: “I believe companies may be starting to see the benefits of their investments in productivity and automation, which will ease dependence on manpower somewhat. But this reflects the ongoing tightening of foreign labour policies, some of which are scheduled to come into effect this year.” Foreign worker levies will be raised across the board from July, the Government announced at the Budget last year.

But with data by the Department of Statistics showing a doubling in the rate of company closures since 2007, it may be time for the government to check the pace of restructuring, Mr Tay said. “In 2007, 9,268 companies were closed down. By 2012, that number shot up to 18,331. Certainly, the post-Lehman economic crisis played a part, but it may also imply the impact of Singapore’s economic restructuring.”

“A physician will want to (know) if his medicine is healing or killing his patient — and likewise, the policymakers may wish to assess whether it’s time to moderate their approach now.”