Singapore's SMEs lower their expectations for next 6 months

By SMBWorld Asia Editors | Oct 14, 2011

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There is a noticeable decline in the overall business outlook of SMEs for the next two quarters (October 2011 - March 2012), with the SBF-DP SME Index recording its largest quarterly drop – from 57 to 51.  SME sentiment is now neutral, where previously it was in positive territory.

The SBF-DP SME Index (the Index) is a joint initiative of the Singapore Business Federation and DP Information Group.  The Index is a forward-looking measure of SMEs’ sentiments for the upcoming six months.

It is based on interviews with 3,000 SME business owners and management, and takes into account the actual financial performance reported by these 3,000 SMEs.  Four industry sectors are included – Commerce / Trading, Manufacturing, Business Services and Transport / Storage.

The drop is across the board – all four major sectors are affected by reduced optimism.  Manufacturing and Business Services experienced the biggest decline in sentiment with a significant eight point drop for both. However, Commerce / Trading was the least impacted, with a three point drop.

According to Chen Yew Nah, Managing Director of DP Information Group, external factors are weighing on the minds of SMEs.

“SMEs are looking at the economic uncertainties around the world and winding back their expectations for the next two quarters. Factors such as slow US growth and European debt woes have undoubtedly affected the confidence of SMEs. While the optimism of SMEs is lower, they have still not turned completely negative.  This suggests a cautious mindset, rather than a fearful one.”

“Capacity utilisation remains high, so if things do not escalate into a global recession, the next two quarters could be better than SMEs expect.  Growth opportunities are still available but SMEs need to watch their costs and be mindful of their balance sheet, given the anticipated difficulties in accessing financing,” Chen said.

SMEs in the Commerce / Trading, Business Services and Transport Storage sectors all expect their turnover and profit to remain flat for the next six months. Manufacturing SMEs expect flat turnover and anticipate that their profits might decline.

The weakening outlook for sales and profits will have a flow on effect in other areas, with SMEs less likely to make new hires in the next six months, as well as believing that they may find access to funding harder to come by.

Commenting on SME business sentiments, Ho Meng Kit, Chief Executive Officer of the Singapore Business Federation, explained, “We are not surprised by the softening business sentiments of SMEs as this survey validated the anecdotal feedback that we have received from some of our members.  With the SMEs in the manufacturing sector being affected, this will impact the other sectors going forward. Our companies have to be prepared for uncertainties and volatilities ahead but there continues to be growth opportunities in Asia. The SBF will look to better assist the business community in building resilience, capability and access these new opportunities.”