SME performance up in Q2 2024, but OCBC predicts flat year

SINGAPORE: Small and medium enterprises (SMEs) in Singapore have shown signs of recovery in the second quarter of 2024, according to the latest OCBC SME Index.

The index, which measures the overall health and performance of SMEs, rose to 50.2 in Q2 2024 from 49.7 in Q1 2024, marking its first expansionary reading since Q4 2022. This increase ends five consecutive quarters of contraction and signals a potential turnaround for the sector.

The OCBC SME Index’s rise was driven by improved performance across seven of the 11 industries tracked. Notably, four industries transitioned from contraction to expansion: Transport & Logistics (50.6), Resources (51.1), Wholesale Trade (50.4), and Healthcare (50.2). Other sectors that saw expansionary performance include Education (50.8), Food & Beverage (50.6), and Retail (50.3).

However, not all sectors fared as well. Building & Construction (49.8), Business Services (49.8), Manufacturing (49.9), and Information and Communications Technology (ICT) (49.5) remained in contractionary territory during Q2 2024.

OCBC attributed the overall index improvement to a 1.4% year-on-year increase in SME collections and a 1.3% decrease in payments. These figures reflect a healthier cash flow situation for SMEs, which is a positive sign amid ongoing economic challenges.

Despite the positive developments in Q2, OCBC has cautioned that the SME Index is likely to remain relatively flat for the remainder of 2024.

“The OCBC SME Index is likely to remain relatively flat and range-bound for the rest of 2024 despite the improvements registered this quarter as the uncertainties in the macroeconomic environment persist,” the bank said.

OCBC highlighted that externally oriented industries might benefit from a global turnaround in electronics, potentially boosting broader manufacturing and wholesale trade. Nevertheless, significant downside risks remain.

Continued global supply chain disruptions and elevated costs, especially in sea transport, pose ongoing challenges. Additionally, further geopolitical tensions could disrupt the disinflationary momentum, potentially dampening domestic demand.

The cautious outlook underscores the fragility of the current economic environment and the need for SMEs to navigate a complex landscape of risks and opportunities as the year progresses.

TISG/