More positive outlook partly due to easing concerns over Mid-East conflict as its impact is less severe than expected
[SINGAPORE] Singapore’s small and medium-sized enterprises (SMEs) remained in expansionary mode in Q3 2026 despite operating against a backdrop of rapidly changing business conditions, noted the latest OCBC SME Index published on Friday (Oct 16).
The quarterly index, which tracks the business health and performance of SMEs in the city-state, edged up to 51.9 for Q3, up from 51.3 in the quarter before. A reading above 50 indicates increased business activity while a score below 50 signals a contraction.
The index is derived using the transactional data of more than 100,000 OCBC Bank’s SME customers in Singapore with annual sales turnover of up to S$30 million.
Yet the outlook for Singapore’s SMEs is expected to remain uneven across and within industries, despite the sector remaining in expansionary mode in Q3 2026, OCBC said. This reflects differences in businesses’ cost structures, productivity levels and adoption of technology.
“SMEs that are better able to capture emerging opportunities ahead will be those that are able to manage costs and margins, invest in improving productivity, and leverage technology to differentiate themselves”, said Elaine Heng, head of global commercial banking at OCBC.
Heng said the expansion in Q3 was underpinned by strong momentum in outward-oriented sectors while growth across domestically oriented sectors has been more measured. She added that this is also reflected in the OCBC SME Business Outlook poll conducted in September, where 35 per cent of the respondents reported better business conditions compared to June, a two-percentage point increase.
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The poll, which gathered 670 responses, is conducted quarterly with the objective of understanding how SME business owners have fared in the recent months, their business outlook and key challenges they are likely to face in the next six months.
It found that near-term optimism was stronger among outward-oriented SMEs, with 45 per cent expecting a better outlook compared with 39 per cent of domestically oriented SMEs.
OCBC noted that resilient external demand, supported partly by the technology and electronics upcycle, continues to create opportunities for SMEs involved in regional trade and supply chains, though geopolitical uncertainties remain.
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On the whole, the poll found that business sentiment had improved, with about 42 per cent of SME owners expecting conditions to improve in the near term. This was up two percentage points from the previous quarter. Another 18 per cent expect conditions to worsen, while 39 per cent anticipate no change.
OCBC attributed the more positive outlook partly to easing concerns over the Middle East conflict. Its impact so far appears less severe than initially feared.
Resilient but uneven
The bank noted that SMEs have remained relatively resilient amid rapidly changing business conditions, and have continued to adapt alongside a modest pickup in sentiment.
In Q3 2026, SME payments rose 19.3 per cent year on year, while collections increased 18.6 per cent.
But growth was uneven across sectors, noted OCBC. Outward-facing and technology-driven industries – including information and communications technology and manufacturing – continue to drive growth. These sectors have benefited from favourable trade conditions and demand for electronics and artificial intelligence-related products.
In contrast, OCBC said growth across domestically focused sectors has been more moderate and varied. Education was the only sector that did not record expansion.
OCBC also noted that businesses continue to face elevated costs for energy, logistics, electricity and manpower. High oil prices have added to these pressures.
As some costs are passed along the supply chain, higher transaction values may partly reflect rising prices, rather than stronger business activity alone. This may have contributed to expansionary readings in some sectors.
Based on the OCBC SME Index, Singapore’s gross domestic product growth in Q3 2026 is estimated at around 5.3 per cent. This is broadly in line with the Ministry of Trade and Industry’s advance estimate of 5.4 per cent.