Firms in Singapore upbeat on half-year prospects

COMPANIES expect business conditions for the next six months to improve, with the service sector edging out manufacturing slightly in optimism.

But sentiment for both sectors has dipped since the previous quarter, as businesses expressed caution on whether the economic upswing would last.

The results came from two separate surveys released on Jan 31 on firms' business expectations for January to June, conducted between December last year and last month.

The Economic Development Board shared its findings on the manufacturing sector, while the Department of Statistics reported on services.

Economists were slightly taken aback by the outcome of the surveys. While the dip in manufacturing sentiment was expected as semiconductor demand was predicted to ease this year, the drop in service sentiment was a surprise, some told The Straits Times.

“For manufacturing, it makes sense as it's coming off from strong growth rates last year. But it seems a bit odd for services, as there should be more spillovers to domestic-oriented services,” said Credit Suisse economist Michael Wan.

Between the two, the service sector was marginally more optimistic, with a net weighted balance of 3% of firms that expect more favourable business conditions.

The net weighted balance is the difference between the proportion of optimistic and pessimistic firms.

But the latest figure is lower than the 9% net weighted balance recorded in the previous quarter's survey, though an improvement over the minus 14% in the same period last year.

A weighted 15% of firms in the service sector are optimistic about business conditions in the next six months, while a weighted 12% of firms foresee slower business.

The majority, or 73%, expect business activity to remain the same as in the previous quarter.

In the sector, the financial and insurance industry expressed the most optimism, with a net weighted balance of 18% expecting conditions to improve.

This is followed by wholesale trade at 6%, and recreation, community and personal services at 4%. The least optimistic industries are accommodation, transport and storage, and food and beverage services.

Mizuho Bank economist Vishnu Varathan said services remain a "mosaic" picture, with some parts brighter than others.

Property, for instance, looks more upbeat than retail, he noted.

"I don't think it's a straightforward picture when it comes to services. But overall, I would say it maintains some recovery momentum from last year," he said.

As for manufacturing, a net weighted balance of only 1% of firms expect an improved business situation for the first half of this year, down from the 5% in the previous quarter.

A weighted 13% of manufacturers expect business conditions to improve, while a weighted 12% foresee the opposite. Most – a weighted 75% – expect no change from a quarter ago.

Within the manufacturing sector, the precision engineering cluster is the most optimistic, with a net weighted balance of 36% of firms anticipating improved business conditions ahead.

The general manufacturing industries and electronics clusters are the least optimistic, with a net weighted balance of 10% expecting a weaker environment.

Economists caution against reading too much into the sentiment-based survey, which could be influenced by developments during the period it was conducted. For example, talk about taxes in December and last month could have increased caution in businesses. — The Straits Times/ANN