http://www.businesstimes.com.sg/sme/...ime-low-of-498

SME sentiment sinks past neutral point to all-time low of 49.8

But pessimistic outlook is in line with recent economic indicators, say analysts

Thursday, December 22, 2016

by Vivien Shiao

[email protected]

@VivienShiaoBT


THE latest SBF-DP SME Index, which measures the business sentiment of small and medium-sized enterprises (SMEs), has dipped to an all-time low of 49.8.

This is the first time in its seven-year history that it has gone below 50.0, indicating a pessimistic outlook. It was just three quarters ago when the Overall Index hit its then-lowest at 50.0 for the Q2 2016 to Q3 2016 period.

The Index - a joint initiative by the Singapore Business Federation and DP Information Group - was the result of responses from more than 3,600 SMEs on their sentiment for the next six months (Q1 and Q2 of 2017). The survey was conducted between October and November 2016.

Five out of six industries, namely Commerce/Trading, Construction/Engineering, Retail/F&B, Manufacturing and Transport/Storage, have a negative outlook for the coming half year, with scores below 50. Business Services was the only exception with a neutral index score of 50.5.

The index scores for Turnover and Profitability Expectations are also both at record lows. Turnover expectations stood at 4.83, down from 5.0 last quarter. A reading below 5.0 signals contraction.

Profitability expectations also declined for the second consecutive quarter, from 4.76 to 4.71. Among the various industries, Construction/Engineering indicated the steepest decline in profit expectations with a fall of 4.82 per cent, from a score of 4.77 to 4.54.

The results came as no surprise to many industry watchers.

Francis Tan, economist at UOB, said the latest survey results are expected and in line with the slew of economic indicators released recently. This includes Singapore's Q3 GDP growth rate of 1.1 per cent, which is at its slowest since the Global Financial Crisis.

Kurt Wee, president of the Association of Small and Medium Enterprises (ASME), observed that it has been a depressed state of affairs for some time.

"Businesses have been going through consolidation since last year … many have seen a large chunk of demand disappearing. SMEs say business costs remain high, with a lot of expectations that cost of funds will go up."

The volatile global environment is one factor affecting business sentiment among SMEs.

Nick Boyle, managing director SEA & Emerging Markets at Experian (parent company of DP Info), said that the second half of 2016 has seen many developments that worry SME leaders.

"The UK Brexit referendum together with the delay in finalising the Singapore-EU Free Trade Agreement has resulted in a decline in Singapore's exports to Europe. We have also witnessed a US election where both presidential candidates campaigned against the Trans Pacific Partnership agreement."

With the cumulative impact of these developments, Mr Boyle said, it was "understandable" that SMEs see little prospect for growth in the coming six months.

Mr Tan pointed out that falling oil prices since the third quarter of 2014 coincided with the decline in business sentiment from then on.

But domestic-oriented SMEs have not been spared either. He added that the Ministry of Manpower's slower wage growth numbers means that consumption demand will grow at a slower pace.

Looking ahead, industry watchers believe that declining business sentiment is unlikely to abate in the coming year. Mr Tan said: "It is expected to continue in 2017."

"Even if there's a Budget with lots of goodies for businesses, it might stall the declining trend, but I won't say it will improve," said Mr Tan.

One thing that SMEs need to watch out for is interest rate costs, according to Mr Tan. "The key thing to look out for now is linked to last week's Fed rate hike. In an inflationary environment, central banks will be hawkish. Across the spectrum of corporates, SMEs don't really hedge their loans and manage interest rate risk."

To help businesses weather the downturn, Mr Wee proposed broad-based internationalisation support to encourage SMEs to move out of Singapore and broaden the market space.

Ho Meng Kit, CEO of SBF, said the upcoming SBF-led SME Committee's recommendations for Budget 2017 will be aimed at helping SMEs to navigate the immediate challenges of business costs.

"The recommendations will also focus on helping SMEs sustain growth particularly during this current economic climate, as well as support scalable, local-based enterprises to develop into globally competitive companies."