The OCBC SME Index extended its upward trajectory for the second consecutive quarter in 3Q 2024, registering a reading of 50.8, up from 50.2 in the previous quarter. This marks a period of steady improvement, driven by a 0.4% year-on-year increase in collections and a 0.3% rise in payments.
A reading above 50 on the index signifies an expansion in business activity, suggesting that small and medium-sized enterprises (SMEs) are seeing a modest but sustained recovery, fueled by easing inflation and growing external demand.
The positive performance is further supported by the GDP growth Nowcast, which estimates the GDP for 3Q 2024 to be slightly above 3.5%. This is an improvement from the 2.9% GDP growth in 2Q 2024, and higher than the 2.6% forecasted by the Monetary Authority of Singapore’s Survey of Professional Forecasters (September 2024).
The Nowcast uses data from the OCBC SME Index to estimate GDP, highlighting the importance of SMEs in contributing to the country’s economic growth.
Broad-Based Expansion Across Most Sectors
A closer look at the index reveals broad-based growth across most industries, with the notable exception of the Information and Communications Technology (ICT) sector, which remains in contraction.
Domestically oriented sectors such as Food & Beverage (F&B), Healthcare, Retail, and Education continue to show healthy business activity. In particular, the manufacturing sector, which had been in contraction for five consecutive quarters, turned expansionary, signaling a pickup in factory activity and business sentiment.
The F&B sector saw significant growth, with a reading of 51.2 in 3Q 2024, up from 50.6 in the previous quarter. Both collections and payments increased by 6% year-on-year, driven by strong performances across F&B services, retail, and wholesale trade.
Despite the robust numbers, SMEs in this sector continue to grapple with rising operating costs and manpower shortages, with 41% of respondents in the OCBC SME Business Outlook poll identifying manpower shortages as a key challenge for the next six months.
Similarly, the transport and logistics sector also recorded a strong showing, with a reading of 51.2 in 3Q 2024. The logistics segment, in particular, showed resilience, posting a reading of 52.6, attributed to the uptick in factory output and improving global supply chains.
However, sea transport remained in contraction, albeit with a narrower decline, due to ongoing port congestions and delayed shipments.
Healthcare, another critical sector, posted a reading of 50.9 in 3Q 2024, supported primarily by the healthcare provider segment, which registered a reading of 51.9. Growth in this sector has been tempered by rising manpower costs, and the outlook remains cautious.
According to the OCBC SME Business Outlook poll, only 34% of healthcare respondents expect an improvement in business conditions over the next six months, while nearly a quarter anticipate a decline.
The education sector, while still expansionary, eased slightly to 50.5, driven by a 7.7% year-on-year increase in collections and an 8.2% rise in payments. Despite this, the sector continues to face labor shortages and inflationary pressures, with 41% of respondents citing manpower shortages as their main concern.
Manufacturing, a sector that has been under pressure for several quarters, finally saw a turnaround in 3Q 2024. The index for manufacturing climbed from 49.9 in 2Q 2024 to 50.4, driven by a 9.8% increase in collections and a 6.8% rise in payments.
Overseas collections and payments showed particularly strong growth, jumping 25.5% and 40% year-on-year, respectively. Precision engineering and electronics and semiconductors segments also recorded healthy increases in collections and payments, though the sector’s long-term sustainability remains uncertain as it grapples with the challenges of global demand fluctuations.
Business confidence among SME owners remains steady, with 48% of respondents expecting their businesses to improve over the next six months. Another 40% expect conditions to remain the same, while 11% foresee a weaker near-term outlook.
These figures indicate a cautious optimism, especially as sectors like F&B, logistics, and healthcare continue to face rising costs and labor shortages.
Looking ahead, the OCBC SME Index is expected to remain slightly expansionary in the next quarter, supported by the gradual recovery in electronics demand and an anticipated disinflationary environment. Lower interest rates may help mitigate some domestic business costs, further easing pressure on SMEs.
However, downside risks remain, particularly due to heightened geopolitical tensions, which could result in increased uncertainty in the macroeconomic environment.
The continued expansion of the SME sector, as reflected in the OCBC SME Index, underscores the resilience of Singapore’s small and medium enterprises. While challenges persist, especially in sectors facing labor and cost pressures, the outlook remains cautiously optimistic.
SMEs are likely to continue driving economic growth in the near term, bolstered by improving business sentiment, global demand recovery, and favorable monetary conditions.
The OCBC SME Index serves as a barometer of the health and performance of SMEs in Singapore. With most sectors showing expansion in 3Q 2024, the index indicates that SMEs are on a recovery path.
As business owners remain optimistic about the near future, the resilience and adaptability of SMEs will be key to sustaining growth and navigating the challenges ahead.
