Only 47% of Singapore SMEs expect growth as employee costs rise sharply

Less than 50% of Singapore’s small and medium-sized enterprise (SME) owners expect business conditions to improve over the next six months, as rising employee costs and stiff market competition weigh on growth prospects.

According to the OCBC SME Index report for Q4 2025, just 47% of SME owners foresee better business conditions, while 37% expect conditions to remain unchanged and 15% anticipate a deterioration. Domestically focused sectors have been particularly affected, with total employee costs rising by 10% in the quarter.

Stiff market competition was cited by 36% of SME owners as the biggest challenge over the next six months, followed by geopolitical uncertainties at 20%. Domestically oriented SMEs remain focused on cost pressures and manpower constraints, whereas outward-oriented businesses reported stronger optimism, benefiting from sustained demand in Q4 2025.

Looking back, 37% of SMEs said conditions had improved compared with three months earlier, 38% reported no change, and 25% said conditions had worsened. Outward-oriented businesses led performance, with 40% seeing improvements, compared with 33% in domestic sectors. Conversely, 28% of domestically focused SMEs reported a decline in business performance during the same period.

The OCBC SME Index rose slightly to 50.8 in Q4 2025, up from 50.5 in the previous two quarters, marking the third consecutive quarter in expansionary territory. Elaine Heng, Head of Global Commercial Banking at OCBC, noted that externally oriented SMEs, including those in manufacturing, ICT, and wholesale trade, continue to drive growth.

“While growth momentum from Q4 2025 could extend into the first months of 2026, the outlook is likely to ease due to higher operating costs and intensified regional competition,” Heng said, adding that SME owners are expected to remain cautious despite Singapore’s relatively strong economy.

The GDP growth Nowcast based on the OCBC SME Index for Q4 2025 is around 5%, up from 4.3% in the previous quarter, in line with the Ministry of Trade and Industry’s GDP advance estimate of 5.7% year-on-year. Prime Minister Lawrence Wong described the economy as having grown “stronger-than-expected” at 4.8% in 2025, up from 4.4% in 2024, while cautioning that sustaining this pace will be challenging.

OCBC’s report also highlighted that SMEs will face a combination of external and internal pressures in 2026, from US policy and economic uncertainties to rising operating costs and competition from Chinese exporters. However, opportunities remain for SMEs that integrate into global value chains and collaborate with multinational corporations.