SMEs bearish on business prospects for H2 2019

The SBF-Experian SME Index fell 1.95% and recorded the lowest reading since 2013.

Singapore’s small and medium-sized enterprises (SMEs) are cautiously optimistic about their business prospects in the next six months, but gloomier than they have been about any other second half over the past six years, the latest SBF-Experian SME Index revealed.

The index, a joint initiative between the Singapore Business Federation (SBF) and Experian measuring the sentiment of 3,600 Singapore-based SMEs, noted that whilst it registered a slight increase in the reading from 50.4 to 50.8 in Q3, the index fell 1.95% YoY and is the lowest Q3-Q4 reading since 2013.

Also read: Local business sentiment weakened in Q2 2019

With optimism in short supply amidst muted market sentiments, the latest Index highlighted an improvement in both turnover expectations (from 5.03 to 5.19) and profitability expectations (from 4.94 to 5.09) as the two biggest uplifts amongst the seven expectations measures. The index comprises inputs from SMEs on their expectations in seven key areas consisting turnover, profitability, business expansion, capital investment, hiring, capacity utilisation, and access to financing.

Meanwhile, SMEs in the commerce and trading sector continued to expect depressed profitability. Neutral turnover growth from dampened external sentiment and having to maintain fixed overheads looked to be dragging down profit growth.

Escalating US-China trade tensions have also likely tempered investment appetite for the sectors, down 0.58% to 5.11, which is the lowest reading since Q4 2012-Q1 2013 at 5.08, highlighting growing concerns of the sector over the protracted trade war.

“The commerce and trading sector has also seen a dip in business expansion expectations (down 1.13% to 5.23). Even as the sector remains positive on expansion, the optimism is likely dampened by the escalating trade war,” the researchers noted, adding that SMEs in the sector also saw the biggest drop in expectations on access to financing (down 2.75% to 4.95).

“Lenders are understandably more cautious in injecting fresh funds into a sector directly impacted by the potential global trade disruption,” they commented.

Also read: Is Singapore losing cash as SMEs pivot abroad?

That said, the broader range of SMEs are continuing to hunt for opportunities in the region, with business expansion and capital investment expectations remaining positive during the quarter at 5.38 and 5.19, respectively.

The report noted that the retail and food and beverage (F&B) segment continued to trend upwards in business expansion expectations, rising up 1.81% to 5.63, as the F&B sub-segment saw greater expansion opportunities, both in the online delivery space and in physical outlets.

“With a memorandum of understanding (MOU) signed by ASEAN restaurant associations, F&B SMEs may be looking at introducing innovative dining concepts to the rest of Southeast Asia. The MOU is expected to help the F&B sectors in Singapore and other regional countries to expand into ASEAN markets, along with promoting best practice sharing,” the researchers highlighted.

Also read: Food factories are eating up Singapore's industrial space

Similarly, the transport and storage industry also recorded a boost in expectations (up 2.27% to 5.40), which is likely due to the sector seeing longer-term opportunities within ASEAN and China, bolstered by the recent formation of the China-ASEAN Multimodal Transport Alliance.

According to SBF’s CEO Ho Meng Kit, the slight rebound in sentiments, buoyed primarily by the retail, F&B and business services sectors, could be due in part to seasonal effects, such as expectations of the year-end holiday season.

“The ongoing trade war between US and China has knock-on effects on global growth, and we have seen the trimming of Singapore’s growth forecast with our factory orders and exports affected,” he said. “Our businesses should not pin their hopes on a resolution in the trade war anytime soon as the current trade tensions are fuelled by underlying problems that run deep.”