Singapore SMEs return to expansionary mode in Q2, but momentum may not last: OCBC
This was due to broad-based improvements across industries, as exporters continue to front-load exports to get ahead of US President Donald Trump's looming tariffs.
The quarterly index, which tracks the business health and performance of SMEs, inched up to 50.5 in Q2, from 49.9 in the fourth quarter.
A reading above 50 signals increased business activity compared to a year ago, while a score below 50 indicates a contraction.
The index is compiled from the transactional data of more than 100,000 OCBC SME customers in Singapore, each with annual revenues of up to S$30 million.
On a year-on-year basis, collections from customers grew by 5.8 per cent, while payments rose by 4.5 per cent.
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However, Linus Goh, OCBC's head of global commercial banking, cautioned that the second-quarter improvement may just be a temporary blip caused by front-loaded exports.
'Whether the timelines down the road also leave some room for some more front-loading, it is hard to say,' he added.
'But to the extent that it does, then perhaps there will be still a bit more trade running in the second half (of the year).'
A separate business outlook poll by the bank revealed that businesses expect the outlook for the rest of the year to worsen or remain unchanged.
Over half of the 1,600 respondents expect business conditions to stay the same or get worse in the next six months, while 43 per cent anticipate improvement.
Meanwhile, close to 50 per cent of respondents said they were negatively impacted by the ongoing Trump tariff issues and uncertainties.
SME owners also expect to face greater fluctuations in exchange rates and interest rates (31 per cent) and further disruptions to supply chains (28 per cent).
Export-oriented growth
The front-loading of exports was the biggest leading indicator for improvement in the export-oriented industries, said Goh, particularly manufacturing and wholesale trade.
The manufacturing index grew to 50.6, driven by strong performance in the consumer products segment. This was despite the sector being weighed down by businesses in precision engineering, as well as electronics and semiconductors.
Meanwhile, the sector's collections and payments increased 1 per cent year on year (yoy) and 0.4 per cent yoy, respectively.
In contrast, the transport and logistics remained in contraction mode, but improved marginally to 49.8, supported by SMEs in the logistics segment.
Similarly, the information and communication technology (ICT) sector inched higher to 49.3, marking its 12th consecutive quarter of contraction.
The sector was weighed down by the data processing and software development, as well as the IT consultancy segments.
Domestic sectors buoyed too
Domestically oriented sectors have also benefited from trade activity.
The food and beverage sector (F&B) rebounded back into expansionary territory, with a reading of 50.6. This was fuelled by growth in the wholesale trade segment, with collections and payments rising 10.4 per cent and 10.7 per cent yoy, respectively.
Despite the spate of restaurant closures, the F&B services segment also returned to expansion in the second quarter, rising to 50.3.
The business services, building and construction, and healthcare sectors also returned to expansion mode with readings all just over 50.
In contrast, education remained contractionary at 49.7, weighed down by weaknesses in formal education and commercial schools as well as a slowdown in business activity for early childhood education SMEs.
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