SINGAPORE companies remain slightly optimistic about business prospects over the next six months, as they exited a nearly two-year-long period of sales contraction in the third quarter of 2024, a quarterly survey has shown.
The net balance for business prospects was 7 per cent, down by a “negligible” one percentage point from the previous quarter, the latest Business Times-Singapore University of Social Sciences Business Climate Survey showed.
The net balance is the difference between the share of companies with an increase and those with a decrease in an indicator, compared to the year-ago period. A positive net balance suggests expansion.
For the first time in two years, the sales net balance was positive, indicating expansion. It was 6 per cent, strengthening eight points from the previous quarter.
This brings a close to the seven-quarter-long contraction phase in sales – the fifth such phase since the survey began in 1996.
However, survey consultant Chow Kit Boey noted that the net balance was lower for overall sales than overseas ones, implying that domestic sales were worse than sales abroad.
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Economists said this is consistent with Singapore’s export-led economic recovery that is also reflected in official data.
OCBC chief economist Selena Ling said the improvement in the global electronics industry may be a contributing factor, while stimulus measures in China could have helped stabilise the Chinese economy as well.
Overseas customers may have also been front-loading imports ahead of expected trade tensions under incoming US president Donald Trump, she added.
It is thus “not a total surprise that overseas sales may have outperformed domestic sales, which were possibly restrained by the gradually cooling local labour market conditions”, she said.
Separately, for orders and new business, contraction eased by a further three percentage points to -6 per cent in Q3, marking the fourth straight month of improvement.
No relief for profitsBut performance did not improve in terms of profits, which remained in contraction. The profits net balance was unchanged at -10 per cent in Q3, despite having eased for three straight quarters previously.
Economists told BT that the continued contraction could be reflective of elevated business costs.
They also do not expect things to improve. Maybank economist Brian Lee said: “Firms will have to grapple with more policy-induced cost increases in the months ahead, particularly on the manpower front, for instance with the hikes in S-Pass qualifying salaries and levy rates.”
From Sep 1 next year, the minimum qualifying salary for new S-Pass applications will rise to at least S$3,300, while the Tier 1 levy rate will also be increased to S$650, from S$550.
Minimum qualifying salaries for Employment Passes are also set to rise from Jan 1, to S$5,600, from S$5,000.
Bucking the trend of contracting profits, however, was the financial and business services sector. In this segment, companies whose profits improved in Q3 outnumbered those whose profits declined.
Financial and business services companies have also turned optimistic about business prospects in the next six months.
The sector was one of two “star performer” segments in the Q3 survey, alongside commerce. Companies in the commerce sector were the only group to see expansion in orders or new business.
Rise of IndonesiaWhen asked which countries held the best business prospects in the next 12 months, businesses were most bullish about Indonesia, Singapore and Malaysia, with these answers accounting for 55 per cent of responses.
Overall, Singapore remains the most-cited country. But its vote share has fallen, and it now shares the top rank with Indonesia, the survey consultant Chow noted.
Compared with a year ago, more companies now see Indonesia as offering the best business prospects, she noted.
Among small companies, Indonesia has overtaken Malaysia to reach the top position. The country is also the most cited by firms in the manufacturing, commerce, as well as transport and communications sectors.
OCBC’s Ling noted that pre-election jitters have faded and the new Prabowo administration – which came into power in late October – may be a catalyst for this optimism.
Maybank’s Lee said the optimism towards Indonesia and Malaysia is likely due to their high growth prospects.
“Malaysia has come into keener focus given its rising prowess (in) attracting investments in high-tech fields like semiconductors and data centres,” he said.
Major infrastructure projects such as the upcoming Johor-Singapore Special Economic Zone and the Johor Bahru-Singapore Rapid Transit System Link could also be buoying sentiment.
On the whole, Chow expects Singapore’s gross domestic product to grow 3.7 to 4 per cent in Q4, in view of “external conflicts and political rivalry”.
Full-year growth could come in at 3.4 to 3.5 per cent, she said.
This is in line with several economists’ forecasts. Both DBS and Maybank have pencilled in full-year growth at 3.5 per cent, while OCBC is expecting 3.3 per cent growth due to a moderation in Q4.
DBS economist Chua Han Teng noted that the ongoing recovery in external-oriented sectors such as manufacturing, trade-related services and modern services should continue in the final months of the year.
“However, the election of Donald Trump as the next US president and his campaign promises to widen the trade war raise the downside risks and uncertainties for businesses in highly trade-reliant economies like Singapore over the coming years,” he said.
Maybank’s Lee said Trump’s win and the Republican sweep could dampen business sentiment in Singapore, with the largest impact likely to be on overseas sales.
More protectionist US policies under Trump could stifle regional trade and foreign direct investment, he added.