Firms gloomier about H1 2019, BT-SUSS survey finds


HAVING ended 2018 on a subdued note, firms are now gloomier about business prospects in the first half of 2019, the latest quarterly Business Times-Singapore University of Social Sciences (BT-SUSS) Business Climate Survey has found.

In particular, foreign firms saw their fortunes take a turn for the worse, after having previously performed better than other groups. However, all firm types reported a better performance in their overseas business activities than those in Singapore.

The survey had asked firms about their performance in the last quarter of 2018, compared to the year-ago period; they were also asked to assess their business prospects for the first half of this year. All in, 159 responses were collected, and these were broken down by whether the firms were foreign or local, and whether they were big or small businesses.

After a long contractionary phase which began mid-2011, the first half of 2018 brought improvement. Sales and orders or new business were in expansionary territory, and profits were almost out of contraction.

In Q3, however, the indicators returned to negative territory. The slump deepened in Q4. From Q3 to Q4, sales net balance fell six points to -7 per cent. This was due mainly to fewer firms achieving high year-on-year sales growth of over 25 per cent.

The net balance is the difference between the share of firms reporting a year-on-year increase in an indicator and those reporting a decrease. A positive net balance suggests expansion and a negative one, a contraction.

The net balance for orders or new business fell eight points to -16 per cent. Profits were largely unchanged, with a net balance of -16 per cent, against -17 per cent in the Q3 survey.

Performance trends varied by firm type. Across all three indicators, foreign firms reported worsening net balances, most starkly for sales, which went from +6 per cent to -31 per cent, and orders or new business, which swung from +9 per cent to -24 per cent.

In contrast, local firms clocked slight improvements in sales and profits - even though net balances stayed negative - and unchanged performance in orders or new business.

Large firms' net balances were worse in sales and new orders but slightly better in profits, with the converse being true for small firms.

Yet despite performing worse than large firms overall, small firms are more optimistic about business prospects in the first half of this year, with a net balance of +3 per cent compared to large firms' -23 per cent.

Small firms were the only group to be optimistic about the next six months. For all respondents, the business prospects net balance was -21 per cent, 18 points lower than in Q3's survey and dragged down by foreign firms' dismal -44 per cent.

Such gloominess confirms the findings of the government's latest business expectations surveys for manufacturers and services firms, which also found that expected business conditions had deteriorated for H1 2019, noted OCBC Bank head of treasury research and strategy Selena Ling.

She cited factors such as the ongoing trade war between the United States and China, and slowing global and regional growth prospects. Furthermore, December's non-oil domestic exports and industrial production figures "had disappointed, suggesting that momentum had faded into the year-end".

"Coupled with the risk-off sentiments and market corrections seen towards the year-end, it is unsurprising that firms have become more cautious," she said.

Mizuho Bank head of economics and strategy Vishnu Varathan notes that the gloomier outlook makes sense, given that front-loaded demand - ahead of US-China tariffs kicking in - is now fading. "The reflection of this downbeat outlook in the new orders or order books is understandably accentuated by businesses erring on the side of caution and preferring to keep inventory or stocks low, and this cascades across the supply-chain," he added.

Yet despite global uncertainty, firms reported better performance overseas than at home, with this being so for the fifth consecutive quarter. Overseas sales had a net balance of +6 per cent, whereas sales in Singapore were in contraction at -7 per cent.

Orders and new business contracted less overseas; the net balance overseas was -7 per cent, compared to -16 per cent domestically. Firms were less pessimistic over business prospects abroad than in Singapore, with net balances of -18 per cent and -21 per cent respectively.

Small firms did particularly well overseas, with net balances of +35 per cent for sales and +24 per cent for new business. They were the only group to be optimistic about overseas prospects, at +33 per cent.

On a sectoral basis, the commerce sector was the top performer, which project consultants Chow Kit Boey and Chan Cheong Chiam said reflected "a turnaround in activities from a low base". "Manufacturing activities have plateaued after several quarters of expansion," they added. The sector's only positive net balance was in business prospects for small manufacturing firms.

The latest Purchasing Managers' Index had shown manufacturing growth slowing for the fifth straight month in January. OCBC's Ms Ling said: "I would hesitate to call a bottom for manufacturing activities yet. Given the relatively high base in H1 2018 and Q1 traditionally being a low season, manufacturing may not have bottomed yet."

Amid global uncertainty, fewer firms were keen on going overseas. In the BT-SUSS survey, three-fifths (60 per cent) of firms indicated overseas expansion plans in the next six months, lower than in the previous two years.

The top destination was Indonesia, followed by Vietnam and Malaysia. For the first time in nine years, China fell out of the top three to fourth place.

"The shift in international focus away from China to Asean may also be a response to the ongoing US-China trade tensions, where firms attempt to diversify their manufacturing value chain to avoid tariffs and retaliatory measures," said Ms Ling.

Regression analysis of the BT-SUSS survey results predicts GDP growth of 2.6 per cent for Q4 2018, compared to government flash estimates of 2.2 per cent. The updated official figure is due to be released on Feb 15.

The regression model also suggests that growth could be 1.8 per cent to 2.3 per cent in Q1 2019. OCBC's forecast for Q1 is 2.2 per cent growth.