Economic uncertainties dampen holiday cheer among Singapore’s SMEs for 4Q19 to 1Q20

According to findings from the latest SBF-Experian SME Index, SMEs have softened their business outlook for the next six months as a result of global economic headwinds.

The global economy has slowed amidst the prolonged uncertainties cast by the ongoing US-China trade tensions, leading to the revision of the Ministry of Trade and Industry’s (MTI) GDP forecast for 2019 to “0.0 - 1.0%”. This is in line with private sector economists anticipating growth to decrease to 0.6%. The Index registered a decrease from 50.8 to 50.6 for the period 4Q19 – 1Q20, reversing the uptrend observed last quarter (from 50.4 to 50.8).

The Index measures the business sentiments of SMEs in Singapore for October 2019 to March 2020. It comprises inputs from SMEs on their expectations in seven key areas – Turnover, Profitability, Business Expansion, Capital Investment, Hiring, Capacity Utilisation, and Access to Financing; and is based on a survey of more than 3,600 SMEs conducted between 8 July and 16 August 2019.

Impact of sustained global headwinds on Retail / F&B SMEs

MTI expressed concerns in February that an escalation of the US-China trade war could impact both business and consumer confidence and affect spending.

Even though SMEs in the Retail / F&B sector displayed the most optimism for Turnover Expectations (5.30), it has registered an overall decline in sentiments, suggesting that local consumers may indeed be feeling the effects of the ongoing trade tensions. This is in line with the current trend of declining retail sales for the fifth consecutive month in June.

The sector registered the biggest slide in optimism around Business Expansion Expectations (down 2.49% to 5.49). This suggests that Retail / F&B SMEs may be managing their aspirations in view of a challenging business environment ahead.

This is supported by the sector’s decline in Capital Investment Expectations, reversing three consecutive quarters of growth (down 2.22% to 5.28). With more conservative business expansion plans, SMEs would inevitably re-evaluate their capital investment commitments.

Commerce / Trading SMEs remain vulnerable to ongoing trade tensions

The outlook among Commerce / Trading SMEs dipped to 50.0, the lowest reading since 1Q17 – 2Q17, showing that the sector is expecting lower trade volumes for 2019 and 1Q2020. This has translated to negative Profitability (4.94) and Turnover (4.99) Expectations, representing the fourth straight quarter of negative profit growth expectations for SMEs in the sector.

Escalating trade tensions also appear to have softened investment appetite among Commerce / Trading SMEs, with a reading of 5.09 (down 0.39%) representing the lowest levels since 4Q12 – 1Q13. This may suggest that SMEs in the sector are scaling back growth prospects and doubling down on existing resources to tide them through protracted adverse economic conditions.

SMEs in the Commerce / Trading sector are also expressing concern around their Access to Financing Expectations (4.96), with lenders seemingly less inclined to provide funds to a sector exposed to global business risks.

Manufacturing impacted by declining global demand

Alongside the Commerce / Trading sector, Manufacturing SMEs posted one of the most significant dips in business outlook, demonstrating the impact of a slowing global economy on external-facing sectors.

The Manufacturing sector registered negative Turnover Expectations (4.98) as a result of a global slowdown in demand for manufactured goods. Profitability Expectations for the sector has also decreased (down 0.21% to 4.86), representing five consecutive quarters of negative profit growth expectations.

The Manufacturing sector also registered the biggest drop in Access to Financing Expectations (down 2.23% to 4.83), with lenders appearing more wary of extending loans to SMEs in a segment of the economy that has displayed ongoing weakness in its order books.

With global headwinds showing no signs of abating, SMEs should also adjust their internal strategies to future proof themselves against sustained challenges in their business environment. This could include embracing digital solutions to boost efficiency, or diversifying target markets to enhance their competitiveness.

This article was originally published by Experian on its corporate website on 30 September 2019.

James Gothard | General Manager, Credit Services & Strategy, SEA | Experian

Currently based in Singapore, James possesses a wealth of experience within the information services sector, with a career spanning more than two decades in the field. He joined Experian in 2002 where he has held a number of project and product management roles, progressing into strategic planning and development, change management/transformation and general management positions.