In a notable shift, Singapore’s small and medium-sized enterprises (SMEs) have entered a growth phase in Q2 after five consecutive quarters of decline, as per OCBC’s latest SME Index released on July 11. This recovery is primarily driven by export-oriented sectors, which turned around in three out of four industries.

The SME Index, which assesses the health and performance of SMEs, increased to 50.2 in Q2, a rise from 49.7 in Q1. A score above 50 indicates improved activity compared to the previous year, while below indicates a downturn. This index is based on transactional data from over 100,000 SME customers with annual revenues up to S$30 million.

In Q2, there was a year-on-year increase of 1.4% in SME customer collections, while operating costs saw a slight decrease of 1.3%. Among the 11 industries included in the index, seven reported growth in Q2, up from three in Q1. Notably, the resources, transport and logistics, and wholesale trade sectors saw a resurgence after six quarters of contraction, alongside the domestic healthcare sector, which rose to 50.2 from 49.4.

The domestic sectors of retail (50.3), food and beverage (50.6), and education (50.8) remained robust. Linus Goh, head of global commercial banking at OCBC, remarked on the overall positive trajectory of the domestic market over the past 18 months.

However, while the major export-oriented manufacturing sector remains in negative territory, it showed signs of recovery, particularly in electronics, semiconductors, and precision engineering, with the manufacturing sector reading at 49.9, slightly up from 49.8. Notably, electronics and semiconductors achieved a score of 51.3, while precision engineering reached 50.7.

The business services sector improved to 49.8 from 49.4, and the ICT industry rose to 49.5 from 48.5. The only decline was seen in the building and construction sector, which slightly dipped to 49.8.

Looking ahead, despite improved figures, SMEs express a more cautious outlook. Of the 800 SME leaders surveyed, only 47% anticipate better performance over the next six months, down from 51% in Q1. Goh suggested that the earlier optimism might have been an anomaly, as previous readings were consistently around 47%.

Geopolitical uncertainties continue to loom large, impacting the business environment. Goh noted that recent changes in governments and policies due to elections could disrupt demand and supply chains, particularly for businesses engaged in overseas value chains. Trade tensions, especially regarding electric vehicle tariffs between Western nations and China, add to the challenges, necessitating adaptations among Singaporean firms.