Manufacturing, services firms turn bearish

Higher proportion of them expect reduced business activity over the next six months

By

Kelly Taykellytay@sph.com.sg@KellyTayBT

Employees working at the wafer production line at REC Solar ASA manufacturing facility in Tuas on Sept 5,2014. 

ST PHOTO: KUA CHEE SIONG

OCT 31, 20155:50 AM

Singapore

BOTH manufacturing and services companies in Singapore have turned pessimistic about their short-term business prospects, official surveys released on Friday show, with soft global economic conditions weighing on sentiment.

A higher proportion of companies in the two sectors now see a reduction in business activity over the next six months ending March 2016 - a reversal from the optimism seen just a quarter ago.

The Economic Development Board (EDB) said that manufacturers' bearish leanings are mostly due to the slowdown in China, as well as weak oil and commodity prices.

Of the more than 400 manufacturers that EDB polled in September and October, 26 per cent expect the business climate to weaken in the next six months - heavily outnumbering the 10 per cent who expect it to improve. The rest see no change.

That translates into a negative net weighted balance of 16 per cent, and marks a significant deterioration from the positive net weighted balance of 2 per cent seen a quarter earlier.

The net weighted balance (the difference between the proportion of optimistic and pessimistic firms) is a widely used measure of the nature and extent of business sentiment.

EDB said the softening in business expectations is broadbased, with most clusters (excluding the biomedical manufacturing cluster) foreseeing a weaker business outlook in the six months ahead.

"The chemicals and the electronics clusters are the most pessimistic, with a net weighted 22 and 38 per cent of firms expecting a worsening situation in the next two quarters, respectively. Firms in both clusters are concerned about the slowdown in China's economy. In addition, the chemicals cluster's outlook is weighed down by excess supply of refined petroleum and chemical products in the region," noted EDB.

While services firms were, on the whole, also more bearish about their prospects for the next six months, sentiment was mixed within the sector.

Out of the 1,500 services firms polled by the Department of Statistics (DOS), a weighted 21 per cent of firms foresee a reduction in business activity, while a weighted 15 per cent anticipate a favourable business outlook. The rest expect no change.

This equates to a negative net weighted balance of 6 per cent - a slippage from the positive net weighted balance of 2 per cent seen a quarter ago.

Firms were polled between September and mid-October.

Emphasising the varying nature of sentiment within the sector, DOS said: "The accommodation, food & beverage services and retail trade industries were among those which foresee favourable business conditions for October 2015-March 2016 compared to April-September 2015. On the other hand, industries such as real estate, wholesale trade and transport & storage services are less optimistic in their outlook."

Indeed, with the upcoming year-end holidays and festive season, domestic-oriented clusters such as the accommodation industry (+40 per cent), food & beverage services industry (+36 per cent), and retail trade industry (+34 per cent) are particularly upbeat about their business prospects.

But more outward-facing industries, like wholesale trade (-16 per cent) and transport & storage (-13 per cent), expect less favourable business conditions. Real estate firms (-22 per cent) anticipate deteriorating conditions, too - especially since they see the uncertain economic outlook leading to buyers holding back on property purchases.