Despite facing shocks from the Middle East, the overall activity of small and medium-sized enterprises (SMEs) maintained expansion in the first quarter, although businesses are becoming more cautious about their outlook, with rising energy costs and logistical disruptions being the biggest challenges.
OCBC Bank released its SME Index for the first quarter of 2026 on Wednesday (April 22), reporting a score of 51.6, above the neutral line of 50, and higher than the 50.8 recorded in the fourth quarter of last year. This marks the fourth consecutive quarter above 50 and an increase for two consecutive quarters.
OCBC Bank conducted a survey from March 2 to 31 among SME owners to understand their recent situations, outlook for the next six months, and potential challenges, collecting about 800 responses.
Wang Yinxuan, President of OCBC Bank's Global Commercial Banking Division, stated that although the index maintained expansion in the first quarter, the business outlook survey indicates that confidence among business owners has weakened due to the geopolitical tensions in the Middle East driving up energy, freight, and operational costs. &#34;Although most SMEs have limited direct exposure to the Middle East, their business interactions remain relatively resilient. However, if tensions persist, cost pressures may become a long-term issue and drag down business activities in the coming months.&#34;
She also pointed out that some agile SMEs have responded to fluctuations in oil prices and rising operational costs by optimizing transportation routes and expanding fuel supply networks. This adaptability, along with the ability to diversify business operations, is key to maintaining resilience in the current challenging environment.
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The report also states: &#34;Given that the conflict has just erupted, the overall impact on small and medium-sized enterprises has not yet fully manifested. The related chain effects may take some time to gradually emerge, especially if the crisis prolongs.&#34;
The survey shows that small and medium-sized enterprises have a conservative outlook for the next six months. About 22% of the surveyed companies expect their business conditions to worsen, an increase of seven percentage points from the previous quarter, reflecting a more pessimistic view of the short-term outlook. At the same time, the proportion of companies optimistic about business improvement has decreased by seven percentage points.
The biggest challenge facing businesses comes from rising costs. Increases in energy, transportation, and logistics costs have pushed up overall operating expenses; at the same time, disruptions in shipping routes and supply chain interruptions have extended delivery times and increased working capital needs. The report points out that if the conflict continues, high inflation may be transmitted layer by layer along the production chain, compressing profit margins for businesses and suppressing commercial activities.
From an industry perspective, the retail sector has performed the best, with the index rising to an all-time high of 53.4, mainly driven by inbound tourism consumption. However, the report notes that if cost pressures are passed on to consumers, it may weaken consumption capacity, and the retail sector also faces downside risks. The manufacturing and information and communication technology sectors also maintained expansion, reporting 51.6 and 51.4 respectively, supporting overall growth.
In contrast, the transportation and logistics, construction, and resource-related industries are more sensitive to fluctuations in fuel and freight costs and may face greater shocks in the future. The report indicates that these industries are highly dependent on energy, and if oil prices remain high, it will put pressure on profitability

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The activity index for small and medium-sized enterprises in the first quarter of 2026 is 51.6, marking four consecutive quarters of expansion, despite challenges such as energy costs and logistics disruptions caused by geopolitical tensions in the Middle East. A survey by OCBC Bank shows that business owners are becoming more cautious about their outlook for the next six months, with confidence weakening. Some small and medium-sized enterprises are responding to cost pressures by optimizing transportation and expanding fuel supply networks

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Under the Middle East conflict, small and medium-sized enterprises have expanded for four consecutive quarters, but the outlook is becoming cautious | Lianhe Zaobao