SINGAPORE – Singapore’s small and medium-sized enterprises (SMEs) remained in expansionary mode in the first quarter of 2026, but the full impact of the ongoing Middle East war – which began on Feb 28 – has yet to be fully felt, OCBC Bank said on April 22.
Higher oil, energy and freight prices have lifted operating costs, while abrupt disruptions to supplies and shipping flows have strained supply chains and added pressure on SMEs, the lender warned.
“Ramifications of the ongoing situation might take time to manifest, particularly if the crisis becomes prolonged,” it added, with the index likely to ease in the coming months as the US-Israel-Iran conflict drives up costs.
The quarterly index, which tracks the business health and performance of SMEs, rose to 51.6 in the first quarter in 2026 from 50.8 in the fourth quarter of 2025, marking the fourth consecutive quarter of expansion.
A reading above 50 signals increased business activity from a year earlier, while a score below 50 indicates contraction. The index is compiled from transactional data of more than 100,000 OCBC SME customers in Singapore, each with annual revenue of up to $30 million.
Growth in the first quarter was broad-based, supported by SMEs in both domestic-facing and outward-oriented industries. Overall collections from customers rose 16.9 per cent year on year during the quarter, while overall payments to suppliers increased 16 per cent.
The domestic-facing retail industry delivered the strongest performance in the first quarter. The sector posted a reading of 53.4 – its highest level since the index was launched in 2021 – up from 51.5 in the last quarter, marking a fourth straight quarter of expansion.
Said OCBC: “Inbound tourism spending continues to provide strong uplift for the retail landscape, while a firm domestic labour market and stable macroeconomic conditions offer broad-based support to SMEs in the retail sector.”
Singapore’s retail sales rose 8.3 per cent year on year to $4.2 billion in February, after a 0.4 per cent decline in January to $4.6 billion, latest official data showed.
Despite the outperformance, the Middle East conflict poses near-term downside risks to retail SMEs if higher input costs are passed on to consumers and inflation erodes purchasing power, the lender said.
Among outward-facing sectors, manufacturing and information and communication technology (ICT) were strong performers.
Manufacturing posted a fourth straight quarter of growth, with a reading of 51.6 in Q1, up from 51 in Q4, supported by the precision engineering and consumer products segments.
While Singapore maintains energy stockpiles that can last several months, a prolonged closure of the Strait of Hormuz would continue to pose risks, OCBC said.
This is especially so for manufacturing segments that are reliant on liquefied natural gas for power generation, as a significant share of such imports comes from Qatar and passes through the contested waterway.
For ICT, the industry registered a third consecutive quarter of expansion with a reading of 51.4 in Q1, up from 51.1 in Q4, partly driven by growth in ICT manufacturing and sales.
Overall collections and payments in the sector rose 22.2 per cent and 16.5 per cent, respectively, as SMEs continued to see “robust” business activity.
However, resource-intensive ICT segments face elevated disruption risks because of high electricity consumption if the crisis is prolonged, said OCBC.
In the first quarter, 22 per cent of SMEs expected business conditions to deteriorate over the next six months, representing a seven percentage-point increase from the last quarter, an accompanying business sentiment poll showed.
For current conditions, 43 per cent of respondents said business conditions were unchanged, up five percentage points from the last quarter. Another 26 per cent reported deterioration, up one percentage point quarter on quarter.
Despite the stronger SME index reading in the first quarter, the share of respondents who improved fell by six percentage points from the last quarter.
Ms Elaine Heng, head of global commercial banking at OCBC, said: “We have seen that SMEs that adapt quickly, such as by implementing route optimisation strategies and broadening their network of fuel pumps, have been able to mitigate the fuel price volatility and rising operating costs arising from the Middle East conflict.
“This agility, together with SMEs’ ability to diversify their business, will be critical in navigating the challenges.” THE BUSINESS TIMES
