S'pore GDP could shrink up to 9% in Q2: survey

Downturn hits more companies but pessimism is waning

(SINGAPORE) Businesses are now less pessimistic about the next six months, although business conditions deteriorated in the first quarter, the BT-UniSIM Business Climate Survey has found.
Even so, the decline in sales, profits and new business orders has slowed significantly.

The survey's indicators, which have been found to correlate closely with economic performance, point to a 7.7 to 9 per cent year- on-year contraction in GDP in the second quarter.

The latest quarterly survey polled 162 local and foreign companies here in early April on their six-month business outlook, as well as sales, orders and profits for the first quarter.

Showing a marked improvement was the business prospects net balance indicator, which reflects the difference between positive and negative responses.

At minus 57 per cent, this gauge of business confidence rose 26 percentage points from the preceding quarter.

Although 40 points down from the optimism of 2008's first quarter, it has returned to a level similar to that in the first half of 2007.

Less pessimism was seen across all types and sizes of firms, although small firms and foreign firms tended to be more bearish, the findings showed. Both groups posted business prospects net balances of below minus 70 per cent.

A detailed breakdown of the findings echoed this improved sentiment. One-fifth of firms expect things to become 'much worse', down from two-fifths in the previous quarter. But those that foresee 'much better' days ahead rose to 11 per cent, from 3 per cent in the previous quarter's survey.

More companies were hit by shrinking sales, profits and new business orders in the first quarter, and more firms saw larger percentage falls. But the rate of decline of these net balance indicators slowed.

'The implication is that the fall in business activity may start to subside in the near future,' survey director Chow Kit Boey said.

The sales net balance lost 12 points to minus 57 per cent, while that for profits slipped 18 points to minus 58 per cent. The decline has slowed, from the falls of 35 and 31 percentage points, respectively, seen in the last quarterly survey.

New business orders fell at a slower pace last quarter too. The indicator lost 9 points to 66 per cent, compared to the preceding quarter's 40 percentage points plunge.

Applying business cycle analysis to firms' expected business activity, Ms Chow's prediction is that the economy will reach a trough by the end of this year.

Comparing companies by size, the survey found that larger businesses outperformed smaller ones on sales, profits and new orders indicators - although the differential between them has narrowed. Pessimism among large firms also declined more sharply than among small firms.

By ownership, local firms performed better than foreign firms on all counts. The gap between local and foreign firms' sales and business prospects widened substantially in the first quarter too.

Sector-wise, the star performer of the quarter was the construction sector, whose sales, profits and orders were the highest overall, and also tops among large firms and local firms.

But construction firms are not the most upbeat about business in the next six months. Those in the transport and communications sector reported the best business prospects.

For small firms, the financial and business services sector looks most promising in the coming six months, probably because small firms from that sector posted the highest levels of orders and new business in the first quarter too.

Source: Business Times, 11 May 2009