OCBC SME Index slips to 51.3 as business services and education contract

Consultancy and advertising remained in a downturn at 49.9 and 49.2, respectively.

Activity amongst small and medium-sized enterprises (SMEs) in business services and education contracted in the second quarter (Q2) despite strong manufacturing activity, the OCBC SME Index showed.

The index, though still signalling expansion, eased to 51.3 from 51.6 in Q1. Whilst manufacturing rose to 52.1, business services fell to 49.7, weighed down by business consultancy at 49.9.

Advertising and exhibition businesses remained in contraction for a fifth consecutive quarter, with an index reading of 49.2. 

Business services collections increased 7.3% year on year, compared with an 8.8% rise in payments. OCBC said the gap suggested firms were struggling to pass higher expenses on to customers.

Meanwhile, education fell to 49.6 from 50.6 in Q1. Training centres recorded the weakest reading in the sector at 48.4, whilst formal education and commercial schools stood at 49.5. 

Early childhood education was the exception, rising to 51.8 in Q2.

Healthcare growth nearly stalled at 50.1, with providers contracted at 49.4. Collections rose 7.3% from a year earlier, whilst payments increased at a faster pace of 12.4%.

The bank said the figures suggested that cost pressures may be outpacing revenue growth for healthcare SMEs. Healthcare distributors performed better, recording an index reading of 51.9.

Eric Ong, head of enterprise banking at OCBC’s Global Commercial Banking division, said export- and trade-linked sectors continued to perform better than firms serving mainly the domestic market.

“With ongoing geopolitical tensions and volatility in the Middle East, SMEs are navigating a complex landscape marked by persistent near-term cost pressures,” Ong said.

Retail recorded the strongest reading among the sectors tracked at 52.8, although it eased from 53.4 in Q1. Collections and payments increased by 17.2% and 17.5%, respectively, supported by consumer spending.

Transport and Logistics rose to 51.5, its third consecutive quarter of expansion, as increased trade activity lifted collections by 15.4% and payments by 14.4%. 

The ICT sector also remained in expansion at 51.1, supported by IT consultancy, ICT manufacturing and sales.

Across all SMEs, payments rose 19.4% YoY, whilst collections increased 19.1%. 

OCBC said part of the rise may have come from companies passing higher fuel, freight and other costs down the supply chain, rather than stronger business volumes alone.

Ong said the index could weaken further but was expected to remain above the 50-point mark. “We anticipate the OCBC SME Index may trend closer to neutral levels.”

He added that SMEs could manage higher costs by expanding into more markets, reducing their exposure to changes in energy and currency prices, and using digital and AI tools to improve productivity.

However, a separate report from Kreston Global showed Singapore's SMEs are currently the least optimistic about international expansion, with respondents scoring their optimism at an average of 7.2 out of 10, the lowest of the 11 markets surveyed and below the global average of 8.2.

Respondents cited geopolitical instability as the most significant threat at 52%, the highest amongst the countries surveyed and above the global average of 45%. 

Meanwhile, OCBC’s quarterly survey noted that 33% of SMEs said business had improved from three months earlier, up two percentage points from the previous poll. 

About 42% reported no change, whilst 19% expected conditions to worsen over the next six months, it added.