SINGAPORE - Concerns over global economic growth are weighing on the sentiment of Singapore firms, with a Trade Confidence Index compiled by HSBC falling sharply.
The Trade Confidence Score for Singapore fell to just 109 points in the second half of the year, from 135 points in the first half.
The average Trade Confidence Score for Asia in the second half of the year was 118.
Fewer than 50 per cent of respondents in Singapore now expect trade volumes to increase over the next six months, versus 80 per cent six months ago, HSBC said.
Moreover, more than 20 per cent of respondents now expect trade volumes to decline.
HSBC Singapore's head of trade and receivables finance, Mr Joseph Arena, said: "Sluggish regional trade from a slowing of China, lower commodity demand and prices, reduced consumer activity and currency volatility has weighed on Singapore's economic growth this year."
Sluggish regional trade flows are having a notable impact on Singaporean firms' view on which regions offer the best opportunity for growth over the next six months, HSBC added.
Although Asia, and China in particular, was still viewed as the most promising region for trade, the number of Singapore firms which were optimistic about the region fell from 87 per cent six months ago to 61 per cent today.
In particular, the number of firms looking to Indonesia as a source of opportunity fell dramatically from 20 per cent to only 3 per cent.
Singapore firms' perception of opportunities for business growth in Europe rose, with 12 per cent of firms citing the region as a promising opportunity for business growth, up from only 3 per cent six months earlier.
Despite the short-term cyclical challenges, Singapore is expected to benefit from the revival in global trade activity, and in particular the role it plays in connecting Asia to the rest of the world, HSBC said.
"HSBC expects that growth in global merchandise trade volumes will recover to around 3 per cent in 2016, and pick up further to 5 per cent a year by 2018-20," the bank said. "Firmer growth in the US and Europe as well as increased China domestic policy stimulus should support an improvement in global demand."
Meanwhile, with oil prices expected to recover over the next few years, mineral fuels are also set to grow strongly, increasing by 8 per cent between 2016 and 2020, and accounting for 40 per cent of total merchandise export growth.
Mr Arena said: "While short-term conditions are challenging, the outlook for the next few years is more positive. The economies of Asia are expected to continue to be the main drivers of global trade and Singapore is well placed to capture the growth as a regional financial and trading centre and the gateway to Asean."