Business environment picks up for second straight quarter

Singapore

SINGAPORE businesses are huffing and puffing on the long road to recovery from the economic trough of last year's two-month circuit breaker.

Sales still lag pre-pandemic levels and sentiment remains negative. But the business environment has improved for the second straight quarter, according to the quarterly BT-SUSS Business Climate Survey from The Business Times and Singapore University of Social Sciences.

The net balance in six-month business outlook rose by 48 points to -12 per cent in the fourth quarter of 2020, just shy of the -8 per cent mark recorded before Covid-19 hit, in end-2019.

That's as 42 per cent of companies polled expected business to be worse in January to June, compared with the year before, while 30 per cent expected that prospects would improve.

Net balances represent the difference between the share of respondents with higher and lower values; a negative balance reflects contraction.

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Yet operating conditions were slower to improve, with net balance for orders and new business inching up by seven points to -61 per cent.

Sales net balance increased by nine points to -58 per cent, while the net balance in profits improved by 14 points to -54 per cent. Profit net balances were all "much lower than a year ago, except for small firms for which the change was negligible", the survey consultants said in the report.

Khoon Goh, ANZ Asia research head, called the poll results "consistent with an ongoing improvement in economic activity from the low point in the second quarter of last year".

But he disagreed with the report's forecast for the economy to grow by 1 per cent to 3.4 per cent year on year in the first three months of 2021.

"The sequential quarter-on-quarter expansion would need to be over 4 per cent," Mr Goh said. "While activity is recovering, it has not been picking up at that pace over the early part of this year so far... The big rebound in year-on-year terms will be apparent in the Q2 GDP data."

Economist Tan Khay Boon, senior lecturer at SIM Global Education, suggested that business will not rebound to pre-pandemic levels until the wider disruption from the virus fades: "Such conditions can include the establishment of the effectiveness of the Covid-19 vaccine, majority of people having been vaccinated and lifting of movement restrictions."

Fourth-quarter sales were lower than pre-pandemic levels at 70.5 per cent of the companies polled, with an average decline of 10.7 per cent.

Still, Dr Tan added that "a small growth driven by strong domestic demand may be possible, especially with more liberalisation in the near future", despite external challenges.

The data suggests that three-tenths of companies have either recovered from the impact of the pandemic or were not badly hit, said BT-SUSS project consultants Chow Kit Boey and Chan Cheong Chiam.

They noted that this proportion beat out the expectation from the quarter prior, for just one-fifth of companies to see sales reach pre-Covid levels by the first quarter of 2021.

"This implies that the economy has strengthened more in the last two quarters of 2020 than foreseen earlier," the consultants concluded.

Yet the recovery looks patchy, as the commerce industry - defined as wholesale and retail traders - outperformed other sectors in the poll.

Fifty-five per cent of commerce firms reported that sales were down on the pre-pandemic baseline, compared with 75 per cent of manufacturers and 83 per cent of companies in the worst-hit construction sector.

The consultants billed commerce as a "star performer" for the quarter, as it took top spot in sales, profits, and orders and new business. The sector's optimism was driven by larger companies, both foreign and local.

Dr Tan attributed the optimism to a "better performance in retail trade", while surmising that the pandemic led more people to work from home, cook at home, and shop online. Retail sales rebounded 10 per cent quarter on quarter in end-2020, the latest Department of Statistics data showed.

Meanwhile, the finance and business services industry was the least pessimistic on the business outlook, especially for large and foreign firms.

The BT-SUSS survey polled 139 respondents, and was carried out from Dec 11, 2020 to Jan 15, 2021.