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Covid-19 and trade tensions dampen Singapore firms' sentiments about 3Q2020

Amala Balakrishner
Amala Balakrishner • 5 min read
Covid-19 and trade tensions dampen Singapore firms' sentiments about 3Q2020
Services and manufacturing firms in Singapore are looking at dim prospects in the second half of this year as the Covid-19 health-turned-economic crisis continues to thwart their operations.
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Services and manufacturing firms in Singapore are looking at dim prospects in the second half of this year as the Covid-19 health-turned-economic crisis continues to thwart their operations.

Although sentiment looks bleak, it is still a moderate improvement from three months ago when businesses were concerned about the “circuit breaker” measures between April 7 and June 1 which shuttered non-essential businesses.

Aside from the pandemic, businesses – particularly the ones in manufacturing – cited uncertainty in global trade and macroeconomic conditions as other areas of concern. This was revealed in two quarterly surveys released by the Economic Development Board (EDB) and the Department of Statistics (Singstat) on July 30.

The six-month outlook for the manufacturing sector saw a net-weighted balance of 7% expecting business conditions to be worse in 2H20 than it was between April and June.

While “subdued”, this is an improvement from the net-weighted balance of 56% who had a negative outlook for the previous survey.

Net-weighted balance reflects the difference between the share of companies expecting business conditions to improve and deteriorate.

Across the clusters, precision engineering recorded the highest optimism with a net-weighted balance of 3% expecting an improved operating environment. This is thanks to resumption of its precision modules and components segment which was stalled during the circuit breaker in Singapore and lockdowns elsewhere in 2Q20.

Similarly, the electronics cluster is looking towards a better performance, following “resilient demand” from the 5G market, cloud and data centres.

Conversely, the outlook for infocommunications, consumer electronics and other electronic modules and components remained austere amid expectations of lower orders.

Meanwhile, pessimism was seen in biomedical manufacturing with a net weighted balance of 22% expecting potential supply chain delays in pharmaceuticals. This bucks the growth trajectory the segment was on earlier this year following heightened demand at the onset of the pandemic.

Similar sentiments were felt in the transport engineering segment – firms in marine & offshore engineering and oil & gas-field equipment are looking at few orders from the low oil prices, while shipyards expect demand for oil rigs to be lacklustre.

Aerospace firms similarly, are expecting lower demand for repairs as aircrafts remain grounded.

As for the services sector, outlook was modest with net-weighted balance of 31% of these firms believing that business will decline from July to December.

This is a significant improvement from is 58% expecting a decline in the previous survey. Optimism varied across the clusters, with information and communications logging the lowest net-weighted average of -17% and accommodation the highest at -76%.

The outlook for food and beverage (F&B) operators and retailers also remains grim, with a net-weighted balance of -32% in F&B services and -24% in retail trade.

Still, SingStat notes this is an improvement from the net-weighted balance of -96% for F&B and -84% for retailers logged in the last survey that covered the "circuit-breaker" period. The improvement is thanks to the resumption of these services since the Phase Two of Singapore on June 19, which allows stores to open subject to safe-management measures and capacity restrictions.

Lower output levels

In light of the weaker sentiment both services and manufacturing firms are looking at a dip in their activity or factory output in the next three months.

From the services sector, a net-weighted balance of 29% of firms are looking at lower operating receipts. This follows pessimism from travel agencies, event organisers and other businesses offering accommodation services and amusement and recreational services that have been affected by the absence of tourists.

With a net-weighted balance of 40%, real estate firms are similarly facing glum prospects. This is due to a “downward pressure on rental rates due to weaker demand for commercial and office spaces,” Singstat observes.

As for manufacturing firms – EDB notes that companies are generally cautious about their production plans in this period of uncertainty. As such, a net-weighted balance of 6% forsee a decline in output.

In this vein, the biomedical manufacturing cluster was the poorest with a net-weighted average of 37% predicting a plummet in production levels following a decline in the output of active pharmaceutical ingredients and biological products.

Sentiment was mixed for the other sectors.

For instance, precision engineering firms expect to fulfill their backlog of orders and meet the growing demand for goods such as optical products. Chemicals and manufacturers meanwhile are more conservative given weak regional demand for mineral oil additives and flavours and fragrances.

In terms of employment – prospects remained glum with a net-weighted balance of 21% for services and 6% in manufacturing predicting a smaller workforce in the ongoing quarter.

Singapore’s seasonally-adjusted unemployment rate edged up to 2.9% in June, worse than the 2.4% it was at in March, according to data released by the Ministry of Manpower (MOM) on July 29. Overall, there were 90,500 unemployed residents in June, of whom 79,600 or some 88% were citizens.

Meanwhile retrenchments for June hit 6,700, more than double the previous quarter’s 3,220. Layoffs were seen across the three sectors, with higher numbers seen in wholesale trade and transport equipment following reduced demand in retail and air travel, the MOM said.

Looking ahead, the ministry warns that softness in the labour market is likely to persist with continued weakness in hiring and pressure on companies to retrench.

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