Saturday, August 1, 2009

Firms here more upbeat about year's outlook

Sentiment up as real economy does better and stocks rally

AS THE economy lifts itself out of recession, businesses are becoming more optimistic about the outlook for the rest of the year.

In the services sector - which makes up two-thirds of Singapore's economy - one in five companies now expects things to improve between July and December.

This is according to the latest business expectations survey by the Singapore Department of Statistics (DOS), which polls 1,400 firms.

The latest level of optimism is sharply up from three months ago, when only one in 20 firms was upbeat.

Manufacturing companies, which account for a quarter of all economic outlook, are similarly cheerier.

Some 16 per cent of them have a positive outlook for the rest of the year, compared to just 7 per cent three months ago, said the Economic Development Board (EDB) in its manufacturing business expectations survey, which polls 400 firms.

In the last three months, sentiment on the ground has perked up significantly, boosted by, and in turn contributing to, the sustained rallies in the stock and property markets.

The real economy is also doing better than expected. It came out of recession in the second quarter, technically, by growing a breathtaking 20.4 per cent between March and June.

This prompted the Government to raise its forecast for full-year growth and many private sector economists to enthusiastically predict a sharp V-shaped recovery for Singapore and Asia.

But there are still companies that remain unconvinced of a swift recovery, although their number has dwindled since the last surveys were done in April.

A quarter of services companies still expect business conditions to deteriorate from now to December - but this is down from more than half three months ago.

In manufacturing, 18 per cent of businesses foresee a decline in the situation, down from 40 per cent in April.

Still, the vast majority of companies - 55 per cent of services firms and 66 per cent of manufacturers - continue to be cautious, believing things will remain largely unchanged until year's end.

This caution stems from continuing uncertainty over whether the rebound in the economy so far is genuine and sustainable, economists said.

'Even though the outlook is less gloomy, uncertainty over the recovery story remains,' said UOB economist Chow Penn Nee yesterday.

She added that companies across the board, whether in manufacturing or in services, would still be 'adopting a wait-and-see approach to hiring'.

Yesterday's surveys showed that firms on the whole expect to keep their employment levels constant in the third quarter of the year. This is a slight improvement from the surveys three months ago, when more firms were predicting a decline in hiring.

Within the manufacturing sector, companies that make electronic products are the most buoyant, said the EDB yesterday. Most of them expect higher output in the third quarter.

'This optimism is broad-based as most of the segments foresee higher orders and exports in the next few months,' it said in a statement.

In contrast, firms in the chemicals and transport engineering industries are the most pessimistic about their prospects in the second half of the year.

Petroleum and petrochemical firms expect weak demand as well as increased competition from new plants being set up overseas, said the EDB.

Companies dealing in marine and offshore engineering anticipate a lack of new orders due to uncertain oil prices, tight credit and a downturn in the shipping industry. Similarly, slower demand for air travel is also affecting the aerospace segment, which is involved in maintenance, repair and overhaul activities.

For the services sector, those in financial services and hotels and catering were the most optimistic about the second half. Fund managers and stockbrokers as well hoteliers were particularly upbeat, as they anticipated a healthy stock market and the upcoming year-end festive season respectively.

But companies in business services, real estate and trade were generally more pessimistic, said the DOS.


'Even though the outlook is less gloomy, uncertainty over the recovery story remains.'

UOB economist Chow Penn Nee

Source: Straits Times, 1 Aug 2009

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