Business confidence in Singapore fell 14%

Will the outlook remain hazy?

New research from the Grant Thornton International Business Report (IBR) indicates that business confidence in Singapore slid over the past quarter due to concerns around bureaucracy and a lack of talent. However, with demand conditions easing and business leaders increasingly looking to invest in their operations, longer-term growth conditions look healthy.

The IBR reveals that Singapore business confidence dropped to 14% in Q1, down from 26% for Q4 in 2012. This despite an uptick in China (19% to 25%), Japan improving massively from-70% to -2% and the United States from -4% to 31%. This places Singapore 12th from bottom in the 44 economy survey.

The key drop seems to have been caused by business concerns over the impact of bureaucracy and talent shortages on growth prospects. 60% of local businesses cite a shortage of skilled workers as constraint on expansion, the second highest level globally. Meanwhile, the proportion citing regulations/red tape ticked up from 12% to 36% over the past quarter.

Ong Soo Ann, Partner of Foo Kon Tan Grant Thornton LLP said. “Businesses complaining about bureaucracy is nothing new. However, that the proportion of local businesses saying regulations/red tape are hindering business growth has climbed to its highest level since we began interviewing in 2007 is a cause for real concern.

"This is being compounded by the shortage of skilled workers to Singapore. Of all the economies surveyed, only India has worse problems than us in this regard. It's important to remember that a business is nothing without its workers."

However, the IBR also reveals that businesses in Singapore and other mature economies are betting on future growth, finally releasing their cash reserves and beginning to invest again. Two in five (40%) Singapore businesses plan to increase investment in plant & machinery over the next 12 months, up from one in eight (14%) over the past quarter. Similar improvements were observed in the EU and North America

Moreover, the proportion of Singapore business leaders citing a lack of demand fell from 18% to 16% over the past quarter, placing the economy in the top ten least concerned by declining order books.

Soo Ann added, "The investment mood change is welcome evidence of businesses deciding that now is the time to lay the foundations for growth. It’s a sign that the large corporate cash reserves that had been building around the world since 2008 are being unshackled.

“With the economic outlook so uncertain, business leaders have understandably adopted a ‘wait and see policy’ with regard to investment. This inertia has

weighed heavily on growth in recent times and has seen corporate cash reserves climb to record highs. This considerable investment firepower could now prove to be a potent force in driving growth in mature economies.”

Sentiment is also improving with regard to the establishment of the ASEAN Economic Community (AEC) 62% of Singapore businesses support the idea, similar to the ASEAN average (66%). Boosting FDI (96%), greater integration into the global economy (90%) and streamlined customs clearance procedure (84%) are seen as the key drivers.