Profits, Prospects Start To Dim As Party Winds Down

Source : The Business Times, August 24, 2007

Businesses in S'pore still did well in Q2, but the pace has flagged, BT-UniSIM survey shows

(SINGAPORE) After a sizzling run that lasted more than a year, business profits and sentiments have weakened slightly in the second quarter of 2007, according to the latest BT-UniSIM Business Climate survey.

The numbers are still positive and healthy, but this could be more than just another blip. It probably means that the Singapore economy is close to the peak of the business cycle and 'an economic slowdown looks imminent,' said survey director Chow Kit Boey.

And while she thinks that the 'sub-prime fiasco could actualise the downturn,' Ms Chow is confident about the future. She says that the slowdown is not likely to last for more than two quarters.

The survey, which is now into its 12th year, polled some 125 local and foreign firms from a wide range of industries on their sales, profits, new orders and business prospects.

It found that profit net balance - the difference between the percentage of companies that reported better profit and those that reported weaker profit - fell 6 points quarter-on- quarter in Q2 2007 to 27 per cent.

A breakdown of the results indicates that some 30 per cent of firms reported no change in profits - higher than the 17 per cent seen in Q1 2007.

Also, the percentage of firms with profit increases of up to 10 per cent dropped from 38 per cent in Q1 2007 to 29 per cent in Q2 2007.

Similarly, the business prospects net balance - the difference between the percentage of companies that expect better times and those that expect things to turn for the worse in the coming six months - fell 2 points to 56 per cent in Q2 compared with the first quarter of 2007.

Local firms are clearly more optimistic, with their net balance rising by a sequential 4 points to 64 per cent in Q2.

In contrast, confidence level about the future dipped among their foreign counterparts to a net balance of 31 per cent - from 46 per cent three months earlier.

Sales net balance rose by a marginal 4 points quarter-on-quarter to 41 per cent, while overall net balance in orders/new business gained one point to 40 per cent during the period.

Based on the survey's findings, the report concluded: 'This implies that the economy is still growing but at slower rates and the current expansion phase is longer in duration than the average of past cycles.'

During the first six months of this year, the economy grew 7.6 per cent, but a number of economists have projected a second-half slowdown in Singapore's economic growth, though it may still meet the official forecast of 7 to 8 per cent full-year growth in 2007.

A comparison of overall and overseas sales, orders and business prospects indicates that business activities in Singapore were stronger than those overseas in Q2 2007.

Generally, the net balances were lower than in the previous quarter. Future business environment could thus become more challenging and performance may weaken.

During the quarter, large firms took the highest net balance in sales - at 44 per cent. This implies that large local firms again performed very well in Q2 2007.

'Small firms did not fare too badly with all net balances in the positive territory. The net balances in sales and profits rose, reflecting the expansion of higher sales and profits to more small firms,' the report added.

In Q2 2007, manufacturing was the star performer in sales, and together with financial & business services took the top spot for orders/new business.

The star performer in profits was financial & business services while the construction sector held the best business prospects for six straight quarters.

Construction was perceived as the best business prospects sector irrespective of size and ownership of firms. It was also the best performer for large firms across all four indicators.