In July, the Small and Medium Enterprise Index (SMEI) rebounded to 50.4, showing signs of recovery in expectations and credit conditions. This improvement was evidenced by a rise from 49.9 in June, bringing the SMEI back into expansionary territory. Standard Chartered economists Hunter Chan and Shuang Ding noted that this rebound was largely due to the positive changes in expectations and credit conditions.
Despite the overall rebound in the SMEI, the performance sub-index continued to stay in contractionary territory for a second consecutive month at 49.7. The services sector was the main contributor to this decline, with sectors such as real estate, construction, finance, retail, and catering all experiencing a decrease in performance. This indicates that there are still challenges within these sectors that need to be addressed for a full recovery.
On a positive note, manufacturing activity showed acceleration in July. SMEs in this sector reported faster production activity, an increase in sales, and new orders, leading to a rise in the manufacturing performance sub-index to 51.3. This was a significant improvement from the previous month when the index fell to 49.8. However, despite this growth, labour-intensive industrial activity declined, and external demand weakened as the new export orders index dropped below 50.
The services sector saw only a slight improvement in performance, with the services performance sub-index increasing by 0.3 points to 49.3. Sales continued to decline in key areas such as real estate, construction, retail, and wholesale. Accommodation and catering SMEs also reported muted sales and new orders, highlighting the struggles faced by businesses in this sector.
While the overall rebound in the SMEI in July is a positive sign of recovery, there are still challenges that need to be addressed. The services sector, in particular, continues to face difficulties that are affecting its performance. Moving forward, it will be essential for policymakers and businesses to work together to overcome these obstacles and ensure a sustainable and robust recovery across all sectors of the economy.