SMALL and medium enterprises (SMEs) in Singapore are less optimistic about their business prospects over the next six months and continue to be cautious, despite recent cheer in the economy.
While the overall SBF-DP SME Index, which measures the business sentiment of SMEs over the next six months, remained in positive territory at 50.6, it is 0.3 point down from the previous quarter's poll.
A reading above 50 indicates that SMEs expect growth in the coming two quarters, while below 50 signals pessimism. The index is a joint initiative of the Singapore Business Federation (SBF) and DP Information Group (DP Info). More than 3,600 SMEs were surveyed in July and August.
Of all the sectors, business services remained the most optimistic with an overall index score of 51.3, although it was slightly lower than the previous quarter's 51.6, as it is supported by corporate demand for information technology (IT) and consultancy services.
"After a sustained period of business expansion, SMEs in the sector are beginning to shift their focus away from expansion towards sustaining their current business operations," said SBF and DP Info on Friday.
The most pessimistic is the construction/engineering sector, with a score of 49.9 - a drop of 0.5 point, as it has been hit by a decline in private and public projects.
Pessimism is also seen in SMEs' ability to generate profits - for the fifth straight quarter, in fact - with many expecting weaker earnings or even to make a loss.
The profit outlook score is 4.86, down from 4.97 last quarter. A score below 5.0 shows that SMEs see their profit performance falling over the next six months.
All sectors except retail/F&B expect their profit performance to worsen. Construction/engineering expects the worst (4.67), trailed by commerce/trading (4.80).
"SMEs are experiencing a protracted period of constrained profitability with the situation expected to get worse in the next six months," SBF and DP Info said.
The relatively muted global and domestic economy, pressure on margins due to competition, as well as the high cost of inputs such as raw materials and labour have been noted as the cause of the pessimism.
Ho Meng Kit, SBF chief executive officer, said that SMEs' sentiment remains weak as a better economy has not translated into a better outlook. "This is reminiscent of a two-speed economy with growth and pickup confined to certain sectors and companies," he said, adding that sentiment was likely to remain muted.
"Weaker turnover and continued cost pressures have compressed margins. With poorer balance sheets on the back of muted turnover expectations, this has also weakened SMEs' access to financing expectations for all sectors."
Low profits too have an impact on SMEs' payment behaviour, based on data from the DP SME Commercial Credit Bureau. The proportion of debts paid on time fell to 37 per cent in Q2 - the lowest in two years.