SINGAPORE - Smaller firms that rely on export markets took a hit in the second quarter, while those that deal more with domestic consumers fared better, a report has noted.
An index compiled by OCBC Bank using data on more than 100,000 small and medium-sized enterprise (SME) customers came in at 49 points in the three months to June 30, down from 49.9 points in the first quarter. A reading below 50 indicates a deterioration in business activity.
It also pointed to reduced sales revenue and lower expenses, both of which suggest a weakening environment.
Domestic sectors performed well, with building and construction, education and business services remaining above 50 points – in expansion territory.
But firms exposed to the global economy suffered, particularly transport and logistics, wholesale trade, and information and communications technology.
They were below the 50-point mark, along with SMEs in the resources, manufacturing, retail and healthcare sectors.
OCBC global commercial banking head Linus Goh said the index, which began two years ago, has indicated that Singapore’s SMEs have been performing well.
“When the economy reopened last year, local businesses had emerged in much better shape than their regional peers, buoyed by government initiatives rolled out during the pandemic,” he added.
“This year, however, there’s been a bifurcation... particularly between domestically and externally oriented businesses.”
For example, pent-up demand and new orders, especially from the infrastructure segment, have bolstered the construction sector.
Despite inflation concerns, these domestic-oriented businesses are still showing signs of growth, but export-sector firms have faced two quarters of weakness.
Mr Goh said that this was largely a result of specific sectors, such as technology, electronics and manufacturing, experiencing waning demand from developed markets in the Organisation for Economic Cooperation and Development, as well as the lack of a boost from China’s much anticipated economic reopening.
Many sectors and sub-sectors of the index seem to be trending lower or approaching contraction in this half, with a growing likelihood of the Singapore economy slipping into a technical recession.
Nevertheless, business sentiment has remained surprisingly upbeat.
Mr Goh said there could be a slight positive bias in the data, partly because the more optimistic respondents tend to be more willing to share their views, and each sector has star performers that can skew the results.
He added that there could be upside surprises too. For example, the travel sector is likely to benefit from upcoming banner events such as concerts by Jacky Cheung, Coldplay and Taylor Swift.
China’s policymakers may be another wildcard if they pump-prime the economy.
“With the growth engine not firing, the leadership could introduce fresh stimulus to lift the economy at some point, and this would provide a boost to the entire region,” Mr Goh said.
SMEs are also quite agile, he added, noting that companies can change tack quickly should they find themselves in a rut.
He cited the food and beverage sector, which had been able to tap overseas growth markets to diversify sales when they faced challenges at home.
On its part, OCBC has been helping SMEs digitalise and go green to better cope with the challenging business environment, said Mr Goh.
There are, he noted, obvious benefits to the SMEs as well as to OCBC, with data showing that firms that digitalise from the start do better than others by a factor of four times.
