Cautious start to 2012 but SMEs expect profit to improve in the next 6 months
Capacity Utilisation Expectations hold steady
SMEs appear to be adapting to this period of slowing growth Index expanded to include Construction / Engineering Sector
19 January, 2012 [Singapore] - Cautious and Prudent. Two words that describe the mood of SMEs as they begin 2012. Singapore's SME owners and managers are taking a 'watch and see' approach to their business, as the outlook for the economy remains uncertain.
This is the key finding of the SBF-DP SME Index for January-June 2012, which measures the business outlook and sentiment of SMEs for the upcoming six months. The SBF-DP SME Index (the Index) is a joint initiative of the Singapore Business Federation (SBF) and DP Information Group (DP Info).
The overall Index remains the same as the previous quarter (October 2011-March 2012) at 51. This means SME sentiment is neutral - a significant change from 12 months ago when the Index was 58 - decidedly in positive territory. An Index reading of below 50 indicates that more SMEs express negative sentiment for the coming six months.
Three important measures - Business Expansion, Capital Investment and Hiring Expectations - all indicate SMEs are pulling back on expenditure that would propel the growth of their businesses.
Business Expansion Expectations fell from 6.13 to 6.00 - with four sectors recording a drop while Commerce / Trading stayed flat (from 6.26 to 6.27).
Capital Investment Expectations is at its lowest level (5.18) since the inception of the Index in the first half of 2010 - a sign that SMEs are conserving their existing resources. This is the third consecutive quarter the Index for Capital Investment Expectations has fallen.
Hiring Expectations is at its second lowest level (5.43), with more SMEs expecting slower hiring in the next half year. For Construction / Engineering, the revised foreign worker policy and other factors have contributed to the decrease in Hiring Expectations in this sector from 5.51 to 5.34.
Mr Ho Meng Kit, Chief Executive Officer of SBF, commented, "Such neutral business sentiments come as no surprise. During this period of economic uncertainty, the manpower shortage in certain sectors, rising business costs and slowing demand from key export markets will affect bottom lines. Amidst this period of sluggish growth, companies should focus on increasing their resilience and capability; they should restructure their operations to be more competitive".
SBF-DP SME INDEX OUTLOOK - JANUARY TO JUNE 2012
All industries except Construction / Engineering, expect profits to improve during January and June 2012, partly due to their pull back in expenditure. The overall Index for profitability increased from 5.23 to 5.29.
Construction / Engineering, Manufacturing and Transport / Storage SMEs all expect their capacity utilisation rates to rise. The overall Index for Capacity Utilisation Expectations stands at 6.94; with an Index reading of 7.00 indicating that SMEs are operating at capacity.
It is not all pessimistic, and Mr Ho added that "with the recently established SBF-led SME Committee (SMEC), we hope to further assist businesses to tap into current government assistance schemes, and in exploring new opportunities in emerging markets. We are optimistic that the growth impetus in Asia will continue to drive demand for our goods and services. In addition, regional integration efforts and trade agreements such as the Trans-Pacific Partnership and ASEAN Economic Community 2015 initiative will boost trade and investments, increasing growth opportunities for businesses".
SMEs have benefitted from being cautious; a lesson that they have learnt during previous periods of slow growth. Their trimming of costs has helped them better manage their profitability and hold steady their Capacity Utilisation Expectations.
According to Ms Chen Yew Nah, Managing Director of DP Info, SMEs are taking prudent measures to prepare for a possible downturn in the global economy.
"With the outlook for 2012 so uncertain, SMEs are responding by pulling back on their business expansion, holding off on capital investment and slowing down their hiring plans. SMEs are unsure how the global economy will perform in 2012."
"SMEs are conserving their resources as an insurance against a possible deterioration of the economy. So the first six months of 2012 will see lower levels of expenditure and fewer new hires by SMEs compared to the end of 2011," Ms Chen said.
CONSTRUCTION / ENGINEERING SMEs NOW PART OF THE INDEX
SMEs representing Construction / Engineering have now been added to the Index, in recognition of the sector's growing contribution to the Singapore economy. The addition is due to the rise in both engineering and construction activities from institutional, residential buildings, industrial and infrastructure projects (e.g. Downtown MRT line and Marina Coastal Expressway) in the past two years.
The Index for the Construction / Engineering sector starts at 51. The Index readings were taken prior to the implementation of new residential property cooling measures in December 2011.
SBF-DP SME Index Outlook - January to June 2012 (Click here)
Appendix A - Index Methodology (Click here)
About DP Information Group (Click here)
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