Business Optimism in Singapore Drops Again – Time to Worry?

Posted by Reading Time: 4 minutes

SINGAPORE – Local businesses in Singapore started 2015 with a pessimistic outlook, continuing a downward trend for the third quarter in a row. According to the newest Business Expectations Survey (BES) – conducted by the Singapore Commercial Credit Bureau (SCCB) – the current Business Optimism Index (BOI) score of +1.11 percent, is the lowest since the first quarter of 2013. In the fourth quarter of 2014, the BOI stood at +10.79 percent. The SCCB has pointed to global economic uncertainty, rising cost pressures and manpower issues, as well as lower demand in the export-oriented sector, as possible drivers behind the lowered optimism.

However, these numbers are not necessarily a reason for concern. Despite the gloomy economic outlook, the Singaporean Ministry of Trade and Industry is still expecting GDP growth of  two to four percent in 2015.

This optimism from the government is not unfounded, there have been previous examples of quarters with low BOI but still reasonable economic growth. For example, the year 2013 also began with a low BOI, scoring in the contractionary region of -0.82 percent for the first quarter. Yet, Singapore´s economy still managed to expand its GDP by 1.8 percent from January to March. Additionally, the first quarter of 2014 had a much lower BOI than the fourth quarter of 2013, but still saw GDP growth of 4.8 percent.

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Six indicators are used to determine the BOI scores: predictions on quarterly sales, new orders, profits, inventory,  selling prices, and employment. The first three indicators showed a year on year decrease, however, positive hiring intentions combined with unchanged selling prices indicate that local business won´t cut back on investment. Analysts predict that companies will train employees and modernize machinery, as well as capital equipment and IT infrastructure, in order to stay competitive.

The most optimistic business sectors were agriculture, mining, and the service industries. If we take into account that the service industry is Singapore´s biggest sector – constituting almost 72 percent of its GDP – any economic pessimism can be somewhat alleviated.

More positive news for the Singapore economy was revealed by the recently released Mastercard Index of Consumer Confidence, a biannual survey. The survey found that Singaporean consumers are feeling more optimistic and confident about their overall economic future than a year ago.  

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With global economic growth forecast to pick up modestly in 2015, and the full integration of the ASEAN Economic Community (AEC) also expected at the end of this year, Singapore’s economy should still be able to achieve positive growth, no matter the current drop in BOI.

The city-state’s economy is export driven, reaching an export volume of over US$400 billion in 2013, and this sector shows little sign of slowing in 2015. Moreover, Singapore´s biggest trading partners, Indonesia and Malaysia  (two key ASEAN nations) both currently have healthy economies.  Additionally, China, another major trade partner, has a free trade agreement (FTA) with ASEAN in operation, and the European Union is expected to sign a similar agreement with ASEAN soon. With the continuing liberalization of the free trade of goods that these FTAs provide, trading costs will only further decline – to the benefit of Singaporean businesses.


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