But sentiment has turned somewhat cautious, according to the latest survey by banking giant HSBC on Small Business Confidence in Asia Pacific.

Compared to 2007, SMEs will be taking on a more conservative approach this year as the economy is expected to moderate amid a likely slowdown in the US.

HSBC is forecasting a 6 percent GDP growth for Singapore’s economy in 2008, down from 7.5 percent last year.

Robert Prior-Wandesforde, Senior Asian Economist, HSBC, said: “Inflation in Singapore is probably the main domestic risk and we’re going to see it rise further before it starts to fall in the second half of this year. I think it may well go up to 6 percent or in fact just above 6 percent. That will provide some constraints on real income, but inflation is not running as quickly as overall wage growth. There are real wage gains happening in the economy at the moment.”

Wage growth in Singapore at the moment is running at 7 percent or so, while inflation is around 4 percent.

According to the survey, 52 percent of the respondents from Singapore expected economic growth to remain the same as 2007, while 55 percent said their capital expenditure would remain the same.

But those who plan to raise their capital expenditure fell to 35 percent from 44 percent in the previous survey.

More than seven in ten Singapore companies said they would keep their current headcounts, and a quarter – down from 36 percent – said they were looking at increasing staff strength.

Those who are looking to reduce headcount also went down, from 6 percent in the last survey to 2 percent.

SMEs are generally positive about the trade outlook with the international community, especially with China and the Asia Pacific economies.

A total of 46 percent of respondents from Singapore expected trade volumes within the rest of Asia to increase over the next six months.

HSBC said Singapore SMEs have much to gain from venturing overseas.

Tan Siew Meng, Head of Commercial Banking, HSBC, said: “From HSBC’s perspective, we continue to support the SMEs in terms of their regionalisation and internationalisation objectives. You can see from the survey results that Vietnam and India, for example, are markets that are still very high in terms of confidence level and you know our SMEs in Singapore can take advantage of the growth expectations in those countries to expand their scope.”

From the survey, expansion seems to be on the cards for many SMEs. 45 percent of the respondents with cross-border activities planned to increase their investments.

The HSBC survey was conducted in the fourth quarter of last year and it covered 2,700 SMEs in Singapore, Malaysia, Hong Kong, China, Taiwan, India, Vietnam, South Korea and Indonesia. – CNA/so

Source : Channel NewsAsia – 4 Feb 2008

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While the fanfare is over how a sparkling first half will lift the entire year’s economic showing — the Government announced on Friday that the GDP expanded by 8.6 per cent year-on-year in the second quarter — a growing monster halfway round the world is threatening to gatecrash Singapore’s party.

The pundits call it the “United States sub-prime problem”. In layman lingo, it’s a wave of Americans with dodgy credit histories defaulting on their home loans, causing some of their lenders to keel over.

Scarily, many such high-risk mortgages have been packaged into complex financial instruments bought by banks worldwide, including those in Singapore.

With banks crying for help, government after government has been pumping in fresh funds to boost liquidity since Thursday. Financial markets, rattled by doomsday scenarios of a global contagion, went into a tizzy.

Singapore share prices plunged by 1.6 per cent on Friday, wiping out all gains made since late April. Investors were pushing the “sell” button, ignoring reassurances by officials that morning.

“We stand ready to inject additional liquidity if the situation so warrants … At this stage, market conditions remain relatively stable,” the Monetary Authority of Singapore’s (MAS) deputy managing director Ong Chong Tee said, when asked if the central bank would follow its counterparts in Japan, Europe and the US, which together ploughed in billions of dollars just before the weekend. Banks have grabbed the funds to cover losses.

Dow Jones Newswires quoted unnamed sources as saying that the MAS injected $1.5 billion into the country’s money supply on Friday. The MAS declined to comment on the figures.

Investors hardly took heed of Singapore’s glowing economic numbers that day.The second quarter saw the construction sector expanding at the fastest pace in nearly a decade and a continued flourish in financial services demand, leading the Government to upgrade its growth forecast for the year to 7 to 8 per cent — up from the previous 5 to 7 per cent.

The bullish prediction factors in the sub-prime situation, said Mr Ravi Menon, Second Permanent Secretary at the Ministry of Trade and Industry. He added that the risk of credit woes spreading was “the most significant downside to the (growth) forecast”. But even if the situation does worsen, “it will take some time before it feeds into the real economy”, Mr Menon said, noting that the fundamentals of the major economies remained sound.

Private-sector economists are not so sure. Mr Vishnu Varathan of research house ForeCast, uncertain when and whether the credit crunch will unravel, has put off revising his growth forecast for Singapore until more clarity on the sub-prime situation emerges.

Singapore’s three local banks recently said their exposures to sub-prime-linked funds were small and limited. But if the US economy does take a hit from the reeling credit market, a ripple effect will certainly touch the Republic despite its attempts to ensure its revenue sources come from other markets besides the US. “None will be spared,” said Mr Varathan.

For now, however, the outlook remains benign — even rosy.

“It’s all cylinders firing,” said CIMB-GK Securities economist Song Seng Wun, confident of continued support by the property, construction, and biomedical sectors. He is also optimistic the sub-prime woes are “a US-Europe problem”.

Other than that, few risks threaten to derail Singapore’s economic progress, Mr Song said. Even oil prices, once the bogeyman, have fallen below US$70 ($106) per barrel.

The only domestic concern, he said, may be rising costs. Consumer prices rose 1 per cent in the second quarter, double the rate of 0.5 per cent in the first quarter. At current levels, inflation has not crimped Singapore’s competitiveness as a business centre. But Mr Song says: “If it continues, then it probably will.”

Source : Weekend Today – 11 Aug 2007

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