Firms’ confidence slides; outlook for 2026 remains cautious: Survey

Key Concepts

• Business Sentiment Index: A composite score measuring business outlook across various dimensions like profitability, cost, hiring, and operational capacity utilization.
• SMEs (Small and Medium Enterprises): Smaller businesses that are disproportionately affected by rising costs and economic uncertainty.
• Cost Pressures: Increasing operational expenses, including manpower, utilities, and logistics, driven by factors like resource constraints and geopolitical tensions.
• Geopolitical Tensions: Global events that create uncertainty and impact trade, supply chains, and business environments.
• Supply Chain Restructuring: Global shifts in how goods are produced and transported, requiring Singaporean companies to adapt.
• Talent Development: Investing in upskilling and training the workforce to meet evolving industry needs, particularly in the face of technological disruption.
• Sector-Specific Interventions: Tailored support and policies for different industries, acknowledging their unique challenges and opportunities.

Singapore Business Confidence and Economic Outlook for 2026

1. Weakening Business Confidence:

• Singapore businesses are reporting weaker confidence for 2026, despite a sharp fall in fears over US tariffs.
• A national survey by the Singapore Business Federation (SBF) indicates that only 4% of companies anticipate higher profitability.
• The Business Sentiment Index fell to 52.2 points in the third quarter, a steeper decline than in the previous quarter, signaling a downward trend in business confidence throughout the year.

2. Key Drivers of Uncertainty and Cost Pressures:

• Geopolitical Tensions: These are creating significant uncertainty in the business environment, impacting Singapore as a small, open, and trade-exposed economy.
• Rising Costs: Businesses are experiencing increasing operational costs, including:
  • Manpower Costs: Driven by manpower shortages in a resource-constrained country.
  • Rental Costs: Attributed to land and space shortages.
  • Utilities Costs: Linked to efforts to decarbonize the economy.
  • Logistics Costs: Increased due to supply chain disruptions stemming from geopolitical issues.
• Regulatory Environment Uncertainty: Businesses are adopting a "wait and see" attitude due to potential changes in regulations.

3. Disproportionate Impact on SMEs:

• Nearly four in ten SMEs anticipate a deterioration in the economic climate next year, a larger share than among big companies.
• Reasons for greater impact on SMEs:
  • Cost pressures are more significant for SMEs.
  • SMEs find it harder to pass on cost increases to consumers.
  • SMEs face greater difficulty in renegotiating contracts with suppliers compared to larger enterprises.

4. Impact on Hiring and Wage Growth:

• Hiring Freeze: Many companies are planning to freeze hiring due to uncertainty.
• Wage Growth Stagnation: Fewer companies are planning wage increases, with more opting to keep wages frozen to manage costs.
• Shift in Business Strategies:
  • Fewer companies are planning to invest in upskilling and talent development.
  • More companies are focusing on cost-cutting measures and business process re-engineering to maintain profitability.

5. Sectoral Sentiment Gaps:

• Upbeat Sectors: Banking and finance, construction, and some parts of the services sector are more optimistic.
• Less Confident Sectors: Food and Beverage (F&B), retail, and hotels and accommodation are experiencing lower confidence.
• Challenges Persist Across Sectors: Even in more confident sectors like banking and insurance, challenges remain, including manpower shortages and the need for workforce upskilling to cope with disruptive technologies like AI.
• Need for Sector-Specific Interventions: The uneven distribution of economic growth across sectors suggests that a one-size-fits-all approach to policy interventions may not be effective. Tailored support for different industries is likely necessary.

6. Business Strategies and Future Focus:

• Looking Outward to ASEAN: Firms are increasingly focusing on opportunities within the ASEAN region as part of global supply chain restructuring.
• Calls for Government Support: Businesses are seeking more support in areas such as:
  • Managing rising costs.
  • Developing local talent.
  • Improving cash flow.

7. AI's Transformative Effect:

• AI is recognized as having a transformative effect, presenting both opportunities and challenges regarding implementation and future impact.

Key Arguments and Perspectives

• Musa Fazal (Chief Policy and Operating Officer, Singapore Business Federation): Emphasizes that the downward trend in business confidence is driven by geopolitical tensions and cost pressures. He highlights that SMEs are more vulnerable due to their limited ability to absorb costs and pass them on. Fazal also points out the need for sector-specific policies rather than broad-based support, given the uneven economic performance across industries. He notes a shift in business focus from talent development to cost-cutting measures amidst uncertainty.

Notable Quotes

• "The regulatory environment is still uncertain. The things may change along the way and therefore businesses are sort of holding back and having a wait and see attitude." (Attributed to the report's narrator)
• "AI in particular has a very transformative effect. On one hand, there are some opportunities we can look forward to, but on the other hand, the question is how do we get there? And when we get there, what will it be like?" (Attributed to the report's narrator)
• "So that is part of that in a way the restructuring right of of global supply chains that are happening and that we you know meaning the Singapore companies have to be part of in order to sort adapt to uh some of these changes." (Attributed to an analyst, discussing firms looking outward to ASEAN)
• "Uh so our survey is done quarterly and one of the key components of the survey is this business sentiment index where we basically ask businesses what's their outlook across seven dimensions including profitability cost uh hiring um their utilization of operational capacity and we we create this composite score uh and uh if you look at the trend over the course of the year it's been a downward trend in terms of this score" (Musa Fazal)
• "Uh it's an interesting question. I uh I'm not I'm not sure it's so much of a two-track economy as a situation where maybe the uh economic growth is not evenly distributed across sectors." (Musa Fazal, responding to a question about a two-track economy)

Conclusion

The Singaporean business landscape is characterized by declining confidence for 2026, primarily driven by persistent cost pressures and geopolitical uncertainties. Small and medium enterprises are particularly vulnerable, facing challenges in managing rising operational expenses and passing them on to consumers. This environment is leading businesses to prioritize cost-cutting and business process re-engineering over talent development and hiring. While some sectors remain more optimistic, the overall sentiment indicates a cautious approach. The report underscores the need for targeted, sector-specific government support and highlights the strategic importance of leveraging opportunities within the ASEAN region amidst global supply chain realignments. The transformative impact of AI also presents both opportunities and significant questions for businesses to address.