In July, the Small and Medium Enterprise Index (SMEI) rebounded to 50.4, reflecting an improvement from the previous month. This rebound can be attributed to the recovery in expectations and credit conditions. According to economists, Hunter Chan and Shuang Ding from Standard Chartered, the increase in SMEI indicates a return to expansionary territory after a brief dip. The overall sentiment is positive due to the positive outlook for the future.
Despite the rebound in the SMEI, the performance sub-index remained in contractionary territory for the second consecutive month at 49.7. This was largely driven by a drag in services, which continued to face challenges in July. Sectors such as real estate, construction, finance, retail, and catering experienced declines, contributing to the overall contraction in the performance sub-index.
Manufacturing Activity Accelerated
On a positive note, manufacturing activity showed signs of improvement in July. SMEs in the manufacturing sector reported faster production activity and an increase in sales and new orders. This led to the manufacturing performance sub-index rising to 51.3, indicating growth in the sector. However, it is essential to note that labour-intensive industrial activities experienced a decline, highlighting the uneven recovery across different segments of the economy.
One concerning aspect of the rebound in SMEI is the weakened external demand. The new export orders index fell below 50, signaling a slowdown in overseas demand for SME products. This could pose a challenge for SMEs relying on international markets for growth and expansion. It is crucial for policymakers and businesses to address this issue to ensure sustainable growth in the long run.
The services sector continued to face challenges in July, with the performance sub-index improving only marginally to 49.3. Sales in the services industry fell further, with sectors like real estate, construction, retail, and wholesale acting as key drags on overall performance. Accommodation and catering SMEs also reported muted sales and new orders, indicating a need for targeted interventions to support these struggling businesses.
While the rebound in SMEI to 50.4 in July is a positive development, there are still challenges that need to be addressed for a more robust and sustainable recovery. By focusing on improving credit conditions, boosting demand, and addressing sector-specific issues, SMEs can navigate through these uncertain times and emerge stronger in the post-pandemic economy.
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