Standard Chartered economists Hunter Chan and Shuang Ding reported that the SMEI dropped to 49.6 in August, reaching its lowest level since the end of 2022. This decline was driven by a decrease in the overall performance sub-index to 48.8, marking the third consecutive month below 50. While most key performance sub-indices fell below 50, the expectations sub-index remained stable above 50, indicating consistent sentiment among SMEs.
Manufacturing Sector Losing Momentum
In August, manufacturing SMEs experienced a decline in sales and production, marking the first decrease since the Lunar New Year in February. The new orders sub-index dropped to an eight-month low of 50, reflecting weaker domestic demand despite a rebound in new export orders. Additionally, the services and trading SME performance sub-index remained in contractionary territory at 48.5 for the third consecutive month.
Although banks continued to support SME financing, liquidity conditions deteriorated in August due to a lengthening of receivables turnover and a decline in cash surplus. As a result, the credit sub-index decreased to 49.9. Furthermore, more surveyed SMEs anticipate the Chinese Yuan to strengthen against the USD in the next three months compared to July.
Analysis and Implications
The latest data on SMEI paints a concerning picture of the small and medium enterprise sector, with performance sub-indices weakening across the board. The decline in manufacturing activity, particularly in new orders, highlights a potential slowdown in domestic demand. While the expectations sub-index remains stable, the overall sentiment among SMEs may be impacted by ongoing challenges in liquidity and credit conditions.
Investors and stakeholders in SMEs should closely monitor these developments and consider adjusting their strategies to navigate the current economic landscape. Understanding the implications of the SMEI trend can help individuals make informed decisions to protect their finances and investments.