Singapore SMEs are looking to invest in business transformation despite expectations of a soft economic environment outlook in the next six months, together with lower turnover and profitability.
The SBF-DP SME Index (the Index) has seen a dip from 50.7 to 50.4 this quarter, indicating an easing of business sentiment and increased caution among SMEs. This is the fourth consecutive quarter with a lowering in the reading: 51.8 (2Q2018), 51.5 (3Q2018), 51.0 (4Q2018), and 50.7 (1Q2019).
The Index – a joint initiative of the Singapore Business Federation (SBF) and DP Information Group (DP Info), part of Experian – measures the business sentiment of SMEs for the next six months (April 2019 to September 2019). The Index comprises inputs from SMEs on their expectations in seven key areas – Turnover,Profitability, Business Expansion, Capital Investment, Hiring, Capacity Utilisation, and Access to Financing. This index is based on a survey of more than 3,600 SMEs conducted between 14 January and 1 March 2019.
Along with a neutral sentiment reading, the latest Index reading highlights lower Turnover Expectations (from 5.13 to 5.03) and Profitability Expectations (from 5.07 to 4.94) as the two biggest strains among the seven expectations measures.
This marks the first time in six quarters that Profitability Expectations has dropped below a reading of 5.0, indicating an increase in uncertainty for the SMEs.
Despite an overall lowered and neutral outlook, the Index shows an increase in Capital Investment Expectations across all sectors, except Business Services. These were cautiously positive this quarter at 5.18, edging up from 5.16 last quarter. Due to the survey period, this could be reflective of initial reactions to SME-related funding initiatives announced during the Singapore Budget 2019 on 18 February this year. This could also indicate a growing focus on business transformation with a view on investing for the long-term success.
James Gothard, General Manager, Credit Services & Strategy SEA of Experian, the parent company of DP Info, said, “It is heartening to see that despite the current headwinds, we are seeing a real sense of momentum and resilience amongst SMEs as Capital Investment Expectations saw an overall increase this quarter. However, we do see the Manufacturing sector reading weaken below 50 for the first time in two years continuing a downward trend from the past four quarters. Though we do believe that this is temporary, in the longer horizon, we may see them bearing fruits due to their investments in business transformation.”
Ho Meng Kit, CEO, SBF said, “The unresolved geo-economic and geopolitical conflicts continue to weigh on the confidence of SMEs, but we urge our companies to keep their eyes focused on the longer term and persist with their business transformation efforts to sharpen quality and improve productivity. This will help them stay ahead of increasing global competition and keep pace with industry changes.”