D&B, Dun & Bradstreet, is pleased to send you the second D&B Optimism Index for Singapore. It is recognized as a product, which measures the pulse of the business community and serves as a reliable benchmark for investors. The D&B Optimism Index is arrived at on the basis of a quarterly survey of business expectations. Over time, this quarterly survey has emerged as a leading indicator of turning points in economic activity in countries which it is published.

Methodology
For the purpose of conducting the survey, a sample is randomly selected from D&B’s database, consisting of companies belonging to the following sectors included Agriculture, Construction, Utilities, Finance, Manufacturing, Mining, Services, Transportation and Wholesaler.

All the respondents in the survey are asked six standard questions regarding their expectations as to whether the following critical parameters pertaining to their respective companies will register an increase, decline or show no change in the ensuing quarter as compared to the same quarter in the prior year: Volume of Sales, Net Profits, Selling Prices, New Orders, Inventory Levels, and Employees. The individual indices are then calculated by subtracting the percentage of respondents expecting decreases from those expecting increases. Unless otherwise stated, increases and decreases in indices represent changes from the previous quarter.

Composite Business Optimism Index
The purpose of the Composite Business Optimism Index is to capture the aggregate behavior of all the six individual indices. Each of the six parameters has a weight assigned to it. For calculating the Composite Business Optimism Index, the positive responses for each of these parameters for the period under review are expressed as a proportion of positive responses in the base period (Q1 2009). The parameter weights are then applied to these ratios and the results aggregated to arrive at the Composite Business Optimism Index. For the purpose of the survey, Q1 is the period between January and March, Q2 is the period between April and June, Q3 is the period between July and September and Q4 is the period between October and December each year.

D & B Business Optimism Index for Singapore for Q4 2009
In October 2009, the Ministry of Trade and Industry (MTI) reported that the growth in Q3 2009 was driven mainly by the continued expansion in the biomedical and electronics segments and the trade-related tourism sector (viz. wholesale and retail, transport and storage and hospitality). MTI is confident that the economy will decline by only 2% in 2009. The better-then-expected performance in Q3 2009 may not be a one-off event as the economy upturn continues.

However, it is cautioned that the economic activities will remain below pre-crisis level beyond 2009. Hence, unemployment will remain a major concern in Singapore despite the signs of recovery. The local economic prospects will continue to be closely tied to external factors. But with the US and global economic growth rebounding in Q2 2009, the local business prospect is more bullish than it first expected. Signs of a speedy recovery is also observed in Japan—the world’s second largest economy.

On the back of a gradual stabilization in global economic conditions, the Singapore economy is expected to improve moderately in Q4 2009. In reality, the situation is much improved when compared with the beginning of the year when the nation was severely hit by the contracting economic activities in its key export markets, such as the United States (US) and the European Union (EU).

The general business sentiment is expected to improve moderately in Q4 2009. A large proportion of the surveyed companies anticipate a rise in their sales volume, net profit, new orders and inventory level.

With an improved volume of sales and higher expectations of new orders, the manufacturers anticipate that their net profits will grow in Q4 2009.

The services sector foresees that the growth of its sales and net profit are comparable to the previous quarter. A large proportion of the services companies surveyed are optimistic that their inventory level will grow in Q4 2009. This is a much improved situation when compared with the previous quarter, when there were more respondents expecting a fall in inventory.

Similarly, the construction sector is anticipating a more bullish outlook in Q4 2009. Fuelled by a boost in housing demand, the sector anticipates that its net profit to grow in Q4 2009. However, it remains a concern if the construction activity for industrial building projects will expand in Q4 2009. Moreover, the bullish outlook is not accompanied by an expected growth in employment.

The financial sector is also presenting an optimistic outlook. Supported by domestic and off-shore non-bank lending and insurance business, the financial sector is expected to enjoy a sustained growth in sales and net profits in Q4 2009.

The services sector foresees that the growth of its sales and net profit are comparable to the previous quarter. A large proportion of the services companies surveyed are optimistic that their inventory level will grow in Q4 2009. This is a much improved situation when compared with the previous quarter, when there were more respondents expecting a fall in inventory.

Similarly, the construction sector is anticipating a more bullish outlook in Q4 2009. Fuelled by a boost in housing demand, the sector anticipates that its net profit to grow in Q4 2009.

However, it remains a concern if the construction activity for industrial building projects will expand in Q4 2009. Moreover, the bullish outlook is not accompanied by an expected growth in employment.

The financial sector is also presenting an optimistic outlook Supported by domestic and off-shore non-bank lending and insurance business, the financial sector is expected to enjoy a sustained growth in sales and net profits in Q4 2009.

The details about the indictors are discussed in the following sections.



The outlook for sales in Q4 2009 shows increased optimism. The resultant Optimism for Volume of Sales in the fourth quarter 2009 is at 44%. The overall sentiment shows an improvement over Q3 2009 (net +38%) when the economy first showed a rebound in gross domestic product (GDP) after a sustained contraction in three quarters. As many as 55% of the companies anticipate their sales volume to rise, while 11% predict a decline, and 34% expect their sales volume to remain unchanged.

The optimism is observed across all sectors, except for agriculture. The mining sector is most bullish, with 67% of the companies anticipating an improved situation, followed by the services (net +55%) and the construction (net +50%) sectors. Motivated by the better global outlook, the manufacturers also expect an increase in their volume of sales in Q4 2009 (net +45%).



Consistent with the expectations about the sales volume, approximately 52% of the companies anticipate a rise in their net profits in Q4 2009, resulting with the overall Optimism for Net Profits in the positive region at 38%, a slight improvement over Q3 2009 (net +37%).

The high level of optimism is mainly driven by mining (net +67%) construction (net +50%), manufacturing (net +50%) and services (net +50%). The manufacturing sector anticipate a significant increase in their net profits - an increase of 54 percentage points over the previous quarter. The mining sector is optimistic with a 67 percentage points increase in the optimism index in Q4 2009, significantly higher than that in Q3 2009, when the net index stood at 0%.



Expectations for selling prices have fallen by 19 percentage points since the Q3 2009. While the majority (69%) of the surveyed companies anticipates an unchanged situation, 22% anticipate a rise in selling price. This is slightly higher than the 9% of respondents who expect a drop in price level. As a result, the net Optimism for Selling Price stands at +13%. Compared to Q3 2009 (+32%), more companies are expecting that inflation is easing in Q4 2009.

The improved sentiment is driven by the transportation (net +29%), construction (net +17%) and manufacturing (net +10%) sectors. None of the agricultural firms predict an increase in selling price. Overall, the agriculture sector anticipates a decline in selling price (net -33%).



37% of the manufacturers surveyed anticipate an improvement in their order book position in Q4 2009. While 47% of the respondents hold the opinion that the situation will remain unchanged, only 16% expect a decline in their book orders.

Thus, the resultant Optimism Index generated for New Orders for the manufacturing sector stands at +21%. This shows a slight improvement over the previous quarter which shows a net +18% for Q3 2009.



The inventory level index has made a strong advance, with a large proportion of companies expecting a full swing in their production. The resultant Optimism index for inventory levels for Q4 2009 is 41% as compared to -1% in the previous quarter, an increase by 42 percentage points.

The bullish sentiment is observed in all sectors surveyed. Leading the growth are the transportation (net +56%) and construction (net +50%) sectors, followed by finance (net +36%), wholesale (net +36%), manufacturing (net +35%), agriculture (net +33%), mining (net +33%) and services (net +30%). About 35% of the companies surveyed indicate that their level of inventory will be unchanged in Q4 2009.



The surveyed companies are cautious in their employment outlook, and the sentiment for Q4 2009 is comparable to that of Q3 2009. While 85% of the respondents foresee a status quo in their workforce, 13% predict that they will hire more workers in Q4 2009. On the other hand, 3% of the companies surveyed are less optimistic in their outlook, thus indicating that they might downsize their workforce in Q4 2009. This resulted in the net Optimism for Employment to stay in the positive region (10%) for the second quarter running.

Employer hiring expectations are strongest in the mining sector (net +33%), followed by manufacturing (net +15%), services (net +15%), finance (net +9%) and transportation (net +9%). On the other hand, the wholesale, construction and agricultural sectors indicate that their workforce will remain unchanged in Q4 2009, despite their strong confidence in an increased output.


Commentary by:
Dr Chan Siew Pang, Acting Head of Programme (Business Analytics), School of Business, SIM University