Business optimism moderates to 7.19 ppt for Q1 2019

Services, transportation and wholesale were the most optimistic sectors.

Business sentiment amongst local companies fell to 7.19 percentage points (ppt) in Q1 2019 from 9.19 ppt in Q4 2018 which still shows visible signs of moderation for the second consecutive quarter, according to Singapore Commercial Credit Bureau’s (SCCB) business optimism index (BOI) study.

On a YoY basis, BOI jumped from 4.29 ppt in Q1 2018 to 7.19 ppt.

Compared to 2018, more firms were found to be more optimistic about investments in business expansion for 2019, with 14% of firms expecting an increasing investments from 9% in 2018. On the other hand, the proportion of firms expecting a decrease in investments rose from 4% in 2018 to 7% in 2019.

A majority or 79% of local firms anticipated investments to remain unchanged, SCCB highlighted.

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It also noted how the top two most important areas of investment for 2019 were machinery and capital equipment (40%) and information technology (36%). Investments in employee skill upgrading came in as the third most important area for investment at 13%.

“In terms of technological investments, a majority of firms are expecting to invest in software (40%),” SCCB said in a statement. “This is followed by investments in ICT infrastructure and network (38%) and upskilling of staff for ICT training programmes (22%).”

New product development (9%), intellectual property (1%) and research and development (1%) followed behind.

“Moving into Q1 2019, we expect visible signs of moderation in the outlook for local firms, particularly with the manufacturing sector in light of muted global demand and softer growth within the region,” SCCB CEO Audrey Chia said in a statement. “The services and financial sectors will continue to remain the key sectors for growth in the new year.”

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According to the study, the services, transportation and wholesale sectors emerged as the most optimistic with five indicators in the positive region for Q1 2019.

For services, a majority of the indicators analysed by the study incred upward due to growth within the information and communications segments, as well as in education, health and social services. Volume of sales moderated strongly from 12.33 ppt in Q4 to 1.72 ppt in Q1 2019, whilst selling price and inventory levels each jumped from 8.22 ppt to 8.62 ppt in Q1 2019.

“Employment levels increased slightly from 9.59 ppt in Q4 2018 to 13.79 ppt in Q1 2019,” SCCB noted.

Meanwhile, the wholesale sector remains relatively optimistic driven by expansionary growth in machinery, equipment and supplies. Inventory levels rose from 35.71 ppt in Q4 to 42.86 ppt in Q1 2019, and selling price rebounded into positive territory from -3.57 ppt in Q4 to 9.52 ppt in Q1 2019.

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The positive outlook in the transportation sector was attributed to growth within the air and water transportation sub-segments.

“Both net profits and selling price rebounded from the contractionary zone each from -50 ppt and -20 ppt in Q4 to 22.22 ppt in Q1 2019,” SCCB added. “New order jumped from 5 ppt in Q4 to 27.78 ppt in Q1 2019.”

Whilst the construction sector was found to be the least optimistic volume of sales falling from 27.27 ppt in Q4 to -14.29 ppt in Q1 2019, Chia noted how there are signs of green shoots with the surprising rebound in optimism levels regarding new orders and inventory levels.

The SCCB BOI is a measure of business confidence in the economy as it tracks how the business community perceives the environment and where they think it is moving towards.