SMEs’ business confidence hampered by uncertain outlook

SINGAPORE — Business sentiment for the second half of the year has improved slightly as small and medium enterprises (SMEs) anticipate more sales in the run-up to the year-end festive season.

However, overall confidence in profits remain weighed down by the uncertain business environment, according to data released by the Singapore Business Federation (SBF) and DP Information Group yesterday.

The latest SBF-DP SME Index for the next six months has inched up by 0.5 points to 50.9 from the last quarter. Despite the modest improvement, it marks the second consecutive quarter in which SME optimism has advanced across all six industry sectors surveyed, namely commerce and trading; construction and engineering; manufacturing; retail and food and beverage (F&B); business services; and transport and storage.

While noting the slight increase in the overall SME sentiments index, Ms Joanne Guo, SBF’s assistant executive director of strategy and development, cautioned that the score “is the lowest second-half reading in the last three years”, which “continues to reflect the uncertainty in the global economy and the tough business environment”.

Optimism is strongest in the business services sector with an overall index score of 51.6, up from 50.8 last quarter. The retail and F&B sector is a close second, with a 1.0 point rise to 51.3, indicating an improved confidence of better consumer demand during the second half of the year.

The manufacturing sector is the least optimistic of the six industries, edging up from 49.7 to 50.1.

While sales are expected to increase, the outlook for profitability remains weak. The overall profit outlook score of 4.97 remains below 5.0 for the fourth consecutive quarter, implying that SMEs are expecting a protracted period of reduced profits, or even losses.

SMEs continue to struggle with costs such as salary and material prices, said SBF and DP in a joint statement. Operating costs in Singapore continue to be high and cost pressures, including the impending increase in utilities charges expected in the coming months, are dampening the SME community’s profit outlook, noted the report.

“SMEs have been investing in improving their productivity and efficiency. However, this can only keep internal costs in check. Externally, costs such as rents, wages and finance remain a key concern for SMEs as they have less ability to control them,” said Mr Sonny Tan, general manager of DP Information.

Despite slow growth and global uncertainty, however, Mr Tan noted that SMEs “have not lost their appetite for expansion”.

The overall index score for business expansion expectations for the current quarter is a healthy 5.6, as SMEs heed the Government’s call to look for more innovative ways of doing business as well as growth opportunities outside of Singapore, according to the report.

The Index measures the business sentiment of SMEs for the next six months. More than 3,600 SMEs were surveyed in April and May on their outlook.