Singapore: Singapore's Small and Medium-sized Enterprises (SMEs) expect business prospects to be uncertain in the first half of 2020 due to global trade tensions leading to an ambiguous business environment.
This was revealed in the latest SBF-Experian SME Index ("the Index") published jointly by financial credit reporting and business analytics firm Experian and the Singapore Business Federation (SBF).
Strikingly, all six sectors polled expected to scale back their business expansion plans resulting in the lowest score for the "business expansion expectation" indicator since the inception of the Index in 2009.
Overall, the Index registered a decrease from 50.6 for the period H2-2019 to 50.4 for the first half of 2020. The overall index is at its lowest level since the beginning of 2017.
The Index is a joint initiative of the SBF and Experian and it measures the business sentiment of SMEs in Singapore for the next six months (January to June 2020). The Index comprises inputs from SMEs on their expectations in seven key areas - turnover, profitability, business expansion, capital investment, hiring, capacity utilisation and access to financing. The Index is based on a survey of more than 3,600 SMEs conducted between 7 October to 15 November 2019.
The six industry sectors included in the index are commerce/trading, construction/engineering, manufacturing, retail/F&B, business services and transport/storage.
The Singapore Ministry of Trade and Industry (MTI) is forecasting modest GDP growth of between 0.5 to 2.5 per cent in 2020, citing risks related to trade tensions and a slowing Chinese economy as the reasons for its cagey outlook.
Economists have warned that recovery could be a slow process due to trade uncertainties and regional unrest. Trade issues have already led to Singapore's non-oil domestic exports (NODX) and total merchandise trade to fall by 9.6 per cent and 6.7 per cent respectively in Q3-2019.
This has led to pessimism among SMEs who responded to the survey with declining expectations for the first half of 2020 across four of the seven sub-indicators. The slowing economy has contributed to declines in turnover expectations, profitability expectations, business expansion expectations and capacity utilisation expectations.
Significantly, despite achieving a positive reading, business expansion expectation is the lowest since the inception of the index in 2009 with the sponsors of the survey saying that this is due to business uncertainties, increased competition and rising cost pressures.
On the bright side, SMEs were more optimistic about hiring and access to financing in H1 2020, while their outlook on capital investment remained unchanged.
The hardest hit in terms of expansion outlook was the business services sector, while construction was the most resilient sector for this indicator, registering the smallest decrease. According to MTI, this is due to sustained construction demand from the public sector which is projected to drive the sector's performance into 2020, continuing its robust performance from the previous quarter.
Both the commerce/trading sector SMEs as well as the retail/F&B sector have been negatively impacted by the volatile global economy and trade tensions, which, in turn, appear to have affected consumer confidence. Capital investment expectations, turnover and profitability expectations are down as well as access to financing expectations. However, hiring expectations are stable.
Expectations from the manufacturing industry, however, appear to have stabilised with the biomedical and electronics sector registering modest growth. This could be an indication that the manufacturing SMEs have turned the corner after reversing a seven-month decline.
What about Indian SMEs?
Indian SMEs, which number over 60 million, employ over 460 million people accounting for 30 per cent of India's GDP and 45 per cent of total exports (according to SME Magazine). The dynamics of the Indian economy is quite different from that in Singapore. Singapore has a very
export-driven economy with no domestic market to speak of and hence is very vulnerable to the external economic environment.
This is reflected in GDP growth rates. The Indian economy is likely to have expanded some 6.1 per cent in 2019 and expected to grow another 7 per cent in 2020, according to the IMF. Advance estimates from Singapore's MTI indicate that Singapore's more mature economy grew by a meagre 0.7 per cent in 2019. Singapore export ratio is 173 per cent, which means it exports up to 173 per cent of its GDP in value of goods and services.
It is one of the few rare countries whose export ratio is above 100 per cent. On the other hand, India is less integrated into the global supply chain compared with Singapore and has a significant domestic market which absorbs up to 80 per cent of the goods and services produced in the country.
In fact, according to a Bloomberg report, India is the only major Asian economy that has been growing its export share since the start of the tariff wars. The report added that India's share of global exports edged higher to 1.71 per cent in the first quarter of 2019 as against 1.58 per cent in the fourth quarter of 2017.
Furthermore, from 2018, when the trade war began, India SMEs have made small inroads into the otherwise tough-to-penetrate and highly competitive international market. From April 2018 to March 2019, overall exports to the US grew by around 9.5 per cent year-on-year while China imported 25.6 per cent more of Indian products.
This continued in the current fiscal year with exports to the US growing 2.9 per cent for the April to August period and exports to China increased some 10.7 per cent. So, whereas the business outlook for 2020 appears worrisome for Singapore SMEs, the same cannot be said of India's SMEs and companies in general.