SMEs open to business transformation investments amidst souring economic expectations: poll

The manufacturing sector saw the highest uptick in capital investment expectations by 2.15%.

Small and medium-sized enterprises (SMEs) in Singapore 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, according to Singapore Business Federation (SBF) and DP Info Group’s latest SB-DP SME Index.

The Index, which measures the business sentiment of SMEs for the next six months (April 2019 to September 2019), saw a dip from 50.7 to 50.4 this quarter, indicating an easing of business sentiment and increased caution amongst SMEs. The index is based on a survey of more than 3,600 SMEs conducted between 14 January and 1 March 2019.

“This is the fourth consecutive quarter with a lowering in the reading, from 51.8 in Q2 2018, 51.5 in Q3 2018, and 51.0 in Q4 2018,” the parties highlighted in a joint statement.

Along with a neutral sentiment reading, the latest Index reading highlighted lower turnover expectations from 5.13 to 5.03 and profitability expectations from 5.07 to 4.94, as the two biggest strains amongst 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,” they added.

Also read: Local business sentiment weakened in Q2 2019

Meanwhile, the Index observed an uptick in capital investment expectations across all sectors, with the exception of business services. The sectors were said to be cautiously positive in Q1 2019 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,” they noted.

The parties further added that the increase in expectations could also indicate a growing focus on business transformation with a view on investing for the long-term success.

“In particular, the manufacturing sector saw the highest uptick in capital investment expectations (up 2.15% to 5.23). This suggests that manufacturing companies are taking necessary steps to transform their business such as investing in digitalising its processes as they expect the near-term moderation in turnover and profit to thin,” they commented.

Mirroring the trend from the manufacturing sector, the capital investment expectations for the retail/F&B sector continued to increase, rising 1.71% to 5.35 in Q1 2019. This is potentially due to SMEs in the sector continuing to embrace technology innovation and digital solutions such as e-payment methods and delivery platforms to improve customer experience and service, the parties explained.

On the other hand, the manufacturing sector saw a 1.2% QoQ weakening in sentiment from 50.3 to 49.7 in January 2019. Representing a 3.87% YoY ease, this is the first time the sentiment dipped below 50 in the past eight quarters, the parties noted.

“For this sector, the weakening in turnover expectations and profitability expectations saw the biggest decrease in sentiment over this quarter. This is possibly due to declining factory output which indicates a weakness in manufacturing demand,” they highlighted, adding that the trend corresponded to findings from a Monetary Authority of Singapore (MAS) Survey where economists expected the manufacturing sector to register a conservative 2.0% growth in 2019 as compared to 7.2% in 2018.