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Business confidence takes a dive

Business Times – 24 Mar 2008

BT-UniSIM survey shows companies gloomy about next six months, despite strong orders

 (SINGAPORE) Business confidence in Singapore has slumped to its lowest level since end-2004, according to the latest business climate survey by The Business Times (BT) and SIM University (UniSIM).

While sales and profit figures were largely unchanged in the three months to Dec 31, 2007, prospects have fallen dramatically for the next six months, the poll of 128 companies revealed.

This was despite companies reporting a strong pipeline of orders and new business. Some 71 per cent of the firms polled have overseas businesses.

Chow Kit Boey, director of the quarterly BT-UniSIM survey, said: ‘I think the firms may be overly pessimistic because of the grim prospects in the US economy, accompanying volatile and weak stock markets and rising oil prices.’

She said that improved orders and new business numbers suggest that the Singapore economy would not suffer too badly in the first quarter of 2008, given the low growth rate a year ago and the largely successful air show in February.

The quarter marked the 17th successive one with positive net balances in sales and orders as well as new business, she added. ‘This implies that the slowdown could be mild. It appears that the economy could grow at a faster rate in Q1 2008 than in Q4 of 2007.’

Economists polled recently by the Monetary Authority of Singapore (MAS) pared their first-quarter growth forecast to a median 5.7 per cent from 7 per cent previously, slightly higher than the 5.4 per cent recorded in Q4 2007.

The BT-UniSIM survey showed that the business prospects net balance – the difference between the percentage of optimistic and pessimistic companies – fell to 20 per cent, from 39 per cent in the third quarter of the year. This was itself a sharp drop from an average of 57 per cent for the first half of 2007, showing how confidence has crashed in recent months.

The drop was particularly severe among large and local firms, whose net balances dropped by more than half from the previous quarter. But foreign firms were about as confident as they were in the preceding three months and, intriguingly, small firms were much more upbeat – net balance for the segment tripled to 26 per cent from 8 per cent.

The overall poor sentiment was partly balanced by healthy orders and new business numbers. The overall net balance – the difference between those reporting more orders or new business and those reporting fewer – rose slightly to 39 per cent, from 32 per cent in the third quarter.

But conditions varied widely across firms. Small companies reported a net balance of minus-one per cent, though still an improvement on the previous quarter (-12 per cent). Foreign companies  recorded a net balance of 51 per cent, up from 26 per cent previously.

Among sectors, financial and business services was the star performer for the quarter. It had the highest net balances in sales, profits and orders, and new business.

Firms in the construction sector were the most confident of business prospects for the next six months for the eighth quarter running.

Foreign firms recorded the best performances for Q4, with the largest increases in net balances for sales, profits and orders, and new business. Local firms saw the biggest decline, owing partly to weaker profits, said Ms Chow.

And comparing overall and overseas sales, orders and prospects showed that domestic business activities were stronger in the fourth quarter. In the previous three months, businesses found better sales and orders overseas. But small and local firms still saw better prospects from their foreign operations, while foreign and large firms were more optimistic on the local market.

Vietnam is also fast climbing the charts as a favoured investment destination. China and India were the other frontrunners but ‘Vietnam has gained much popularity as an investment destination by almost all types of firms’, said Ms Chow.

The BT-UniSIM survey was launched in 1996 and is now in its 13th year.

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