SME business sentiment plunges amid poor profit outlook

SINGAPORE — Business sentiment among local small and medium enterprises (SMEs) has fallen to the second-worst level in seven years, Singapore Business Federation (SBF) said on Thursay (Sept 22), as it urged the SMEs to look overseas for growth or be prepared for stagnation if they confine themselves to the home market.

The latest SBF-DP SME Index, which measures the business sentiment of SMEs for the next six months from the fourth quarter this year to the first quarter of next year, fell 3.3 per cent from the previous quarter to 50.2 points, the SBF said. This is barely above the lowest score since the global financial crisis of 50 that was recorded two quarters ago.

The index, which covered more than 3,600 SMEs, recorded declines in all six industries – commerce/trading, construction/engineering, manufacturing, retail/food and beverage, business services, as well as transport/storage. The pessimism is driven by the worst outlook for profits in seven years, with companies in five of the six sectors indicating they expect their earnings to decline or even suffer losses in the coming two quarters, SBF said. SMEs in three sectors – commerce/trading, manufacturing and transport/storage – also said they expect worse trading conditions in the coming six months compared to the present.

Mr Ho Meng Kit, CEO of SBF, said it is not surprising that SMEs remain largely pessimistic about their growth prospects given the tepid global economic conditions and sluggish domestic economy. Britain’s vote in June to leave the European Union, which jolted financial markets initially, may have contributed partly to businesses’ weak sentiment in the survey, he said.

“The lowest profit expectations and second-lowest overall index in seven years indicate that our SMEs are barely keeping their heads above water. In part, this reflects the constraints of operating in Singapore where costs are high. With excess capacity and sluggish demand, it has become tougher for our smaller businesses,” Mr Ho said, adding that SME business sentiment is not expected to improve any time soon.

“We urge our SMEs to look overseas for growth, especially in ASEAN which will enjoy good growth of 5.2 per cent over the next five years. Take your chances and venture overseas. The federation stands ready to help our members internationalise. If you confine your business in Singapore, be prepared for a long period of low growth or even declining profitability,” he added.

UOB economist Francis Tan said: “The index gels with the real numbers, as now the externally driven industries — commerce/trading, manufacturing and transport/storage — are impacted the most. For all sectors registering a decline in sentiment, this is not a surprise as the economy’s growth rate is still slow this year.” UOB forecasts Singapore’s economy to expand 2.2 per cent this year, higher than the official forecast of between 1 and 2 per cent.