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SINGAPORE’S small and medium-sized enterprises (SMEs) extended their growth momentum for a second consecutive quarter in Q3, according to the latest OCBC SME Index released on Tuesday (Oct 15).

The improvement was fuelled by broad-based growth across almost all industries, with manufacturing returning to expansion after five consecutive quarters of contraction.

The quarterly index, which tracks the business health and performance of SMEs, rose to 50.8 in Q3 from 50.2 in Q2.

A reading above 50 signals increased business activity compared to a year ago, while a score below 50 indicates a contraction.

The index is compiled from the transactional data of more than 100,000 OCBC SME customers in Singapore, each with annual revenues of up to S$30 million.

In Q3, SME collections increased by 0.4 per cent year on year, while payments edged up by 0.3 per cent, reflecting a modest rise in operating costs.

Out of the 11 industries tracked, nearly all – except for ICT – were in expansionary range, up from seven in the previous quarter.

The manufacturing industry saw its index climb to 50.4 in Q3, up from 49.9 in Q2, driven by a 9.8 per cent year-on-year increase in collections. However, this was tempered by a 6.8 per cent rise in payments.

Overseas collections and payments also surged, rising by 25.5 per cent and 40 per cent, respectively, compared with the same period last year.

“While the recovery in global electronics demand, and improvement in business sentiments and factory output bodes well for SMEs in the industry, it remains to be seen whether growth can be sustained in the near term,” OCBC said.

Domestically oriented industries, such as food and beverage, healthcare, retail, and education, continued to “see healthy business activity”, maintaining levels similar to those seen in Q2.

In Q3, both the business services and building and construction industries returned to expansionary territory, after previously contracting.

Business services saw its index rise to 50.6, supported by strong performances in the advertising and exhibition and accounting and legal segments.

Similarly, the building and construction industry posted an index of 50.4, rebounding after a dip in the previous quarter. Although collections increased, this growth was partly offset by a rise in payments.

ICT contraction

The ICT industry, however, continued to struggle, with the index slipping to 48.7 in Q3 – marking its ninth consecutive quarter of contraction.

Although IT consultancy and ICT manufacturing and sales recorded expansionary readings of 50.2 and 50.5, the industry remained under pressure due to weaknesses in the data processing and software development segment, which registered a reading of 48.1.

Despite these challenges, ICT business owners were relatively optimistic, with 53 per cent expecting business conditions to improve over the next six months, while only 9 per cent forecast further deterioration.

Looking ahead, the index is expected to remain slightly expansionary in Q4, supported by a recovery in global electronics demand and the prospect of further interest rate cuts.

“However, downside risks persist, as heightened geopolitical tensions would result in greater uncertainty in the macroeconomic environment,” OCBC cautioned.

Business confidence among SME owners remained similar to the previous quarter, with 48 per cent of the 1,100 respondents expecting improved performance over the next six months.

Another 40 per cent foresee steady conditions, while 11 per cent anticipate a downturn.