EXPECTATIONS of business expansion among Singapore small and medium-sized enterprises (SMEs) have sunk to their lowest since 2009, according to a quarterly survey by the Singapore Business Federation (SBF) and Experian.
All six sectors polled for the latest SBF-Experian SME Index have scaled back their expansion plans for 2020.
This was likely due to an uncertain economic environment, increased competition and rising cost pressures, SBF and Experian said in a joint statement on Monday.
The hardest hit in terms of expansion outlook was the business services sector, while the construction sector saw the smallest decrease thanks to sustained demand from the public sector.
The SBF-Experian SME Index measures the overall business sentiment of SMEs in Singapore for the next six months of January 2020 to June 2020. Some 3,600 companies were surveyed on their expectations in seven areas: business expansion, turnover, profitability, capital investment, hiring, capacity utilisation and access to financing.
Overall optimism dampened for the first half of 2020, with the index falling further to 50.4, compared to 50.6 in the previous survey for Q4 2019 and Q1 2020.
Singapore SMEs softened their overall business expectations due to the slowdown in the Chinese economy and possible risks persisting from the protracted US-China trade war, SBF and Experian said.
A reading above 50 indicates that SMEs in general expect their businesses to improve in the next six months, while a reading below 50 indicates expectations of lower business activity.
However, the latest survey was conducted between Oct 7 and Nov 15 this year, before the US-China "phase-one" trade deal was announced on Dec 13, said Ho Meng Kit, SBF chief executive officer.
"The question is whether this represents the floor and if sentiment will improve going forward," Mr Ho noted. "While we hope for some stability, our companies must be prepared to grapple with continued uncertainties as the US and China work through the implementation of the agreement and commence further negotiations."
He recommended SMEs take a watch-and-wait approach, seeing as the business environment in the first half of next year may stay depressed.
In terms of financing, Mr Ho said that SMEs were expecting a tighter credit environment, and support for short-term financing such as invoice financing or the sharing of loan insurance risk premium could help lift the sector and mitigate a widening of the credit gap.
He added expansion of Singapore's digital banking sector could improve access to finance for underserved SMEs.
In the latest index, there were declining expectations across four out of the seven sub-indicators.
Besides tempering their expectations on business expansion, respondents were also less upbeat on their profitability, turnover and capacity utilisations for the first half of 2020, compared with the previous survey.
However, SMEs were more optimistic for hiring and access to financing in H1 2020, while their outlook on capital investment remained unchanged.
Among the individual sectors, overall sentiment in the commerce and trading sector registered the biggest decline due to the volatile global economy. The sector recorded lower expectations for six of the seven indicators, with only its hiring outlook remaining unchanged.
Meanwhile, the manufacturing sector became more optimistic in general, registering improved expectations across nearly all the indicators this time.
Retail and food and beverage SMEs registered the biggest decline in turnover expectations, possibly indicating that consumer sentiment has been affected.