Amid mounting concerns of stronger global political headwinds and softer regional demand hitting exports, an index measuring confidence among Singapore businesses has tumbled at the start of the new year.

The Singapore Commercial Credit Bureau (SCCB) said on Monday that its latest Business Optimism Index (BOI) fell sharply from +10.79 percentage points in the fourth quarter of last year to +1.11 percentage points in the first quarter of 2015.

The latest BOI reading marks the second lowest score in two years since the first quarter of 2013 when the BOI contracted at -0.82 percentage points. Only three of six indicators rose, which stands in contrast to the previous quarter when five business indicators moved higher.

When compated to the same period a year ago, the overall BOI score fell sharply from +13.13 percentage points in Q1 2014 to +1.11 percentage points in Q1 2015.

Year-on-year business confidence has worsened with 5 of six business indicators contracting. Both services and agricultural sectors ranked as the two most optimistic sectors while the transportation sector is least optimistic about the outlook for Q1 with four of five business indicators falling.

Local firms have also identified higher business costs as the main challenge for 2015 (48 per cent), followed by global economic uncertainties (22 per cent), foreign labour issues (14 per cent), reduced sales (12 per cent), lack of financing (2 per cent) and others (2 per cent).

The SCCB further revealed that the two most important areas of investment for 2015 are machinery and capital equipment and skills upgrading of employees at 42 per cent and 35 per cent respectively. Twelve per cent of firms polled indicated IT infrastructure and 4 per cent have indicated research and development as the most important area of investment.