Malaysian businesses less optimistic on prospects for next six months
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Malaysian businesses are displaying less optimistic sentiment on prospects for the next six months as the RAM Business Confidence Index (RAM BCI) fell to its lowest level since its inception two year ago. RAM said in a statement today that the corporate and the SME indices of the RAM BCI declined to 55.1 and 51.0 respectively, although the reading above 50.0 still denotes positive sentiment.
The RAM BCI is a comprehensive survey jointly conducted by RAM Holdings Bhd and RAM Credit Information Sdn Bhd, on business sentiment in Malaysia. Released quarterly, the index is based on data from a survey of close to 3,500 SMEs and corporates across five main industry segments respectively.
The cooler sentiment is attributable predominantly to the weak economic prospects in the next six months, with a number of firms citing this as the main challenge, rising to 41.2% and 41% both corporate and SME segments.
Decelerating domestic growth, uncertain global demand and investment activities and a lack of positive catalysts, including the relatively neutral Budget 2019, all play a part in the generally weaker business sentiment on the next six months.
On a sectoral basic, the construction sector appeared the least bullish with the SME sector recording a reading at 49.7 while the corporate sector declined for the third time in a row to 53.0.
Without any new growth catalyst amid the property overhang, plus the shelving of new big-ticket infrastructure projects, it is not surprising that the construction sub-indices have hit record lows, RAM said.
“Faced with uncertain global and domestic economic prospects, consumers are once again more prudent with their spending, leading to weaker sentiment on retail consumption in 2019,”
Another sector that showed pessimism in the Q1-Q2 2019 survey is SME retail as its performance outlook slipped back into negative territory after a brief expansionary momentum that had been aided by the tax-free window from June to August 2018.
“Faced with uncertain global and domestic economic prospects, consumers are once again more prudent with their spending, leading to weaker sentiment on retail consumption in 2019,” it added.
On the back of weaker prospects, the firms are also holding back from capacity building with the sub-indices tracking corporate business expansion, capital investment and hiring recording a fall in three consecutive surveys.
Likewise, the capacity-building sub-indices for SMEs pulled back from the last survey and remain below those of corporates.
RAM noted that firms’ expressed reticence on capacity building remains the most prominent downside risk, as it could weigh on the momentum of economic growth in 2019 and potential economic output over the longer run. This is particularly true in respect of SMEs, which are more vulnerable and sensitive to immediate economic challenges.
“That said, more guidance on future economic policies that will shape the overall business environment will be crucial to building business confidence among firms, potentially being the game changer for a more resilient growth trajectory this year,” it added.
Questions & Answers
Q.Which sectors are showing the most significant pessimism regarding future prospects?
Which sectors are showing the most significant pessimism regarding future prospects?
The construction sector is the least optimistic, with its SME index at 49.7 and corporate index declining for a third consecutive time. SME retail also showed pessimism, slipping into negative territory after a temporary expansionary period.
Q.What factors are contributing to the overall decline in business sentiment?
What factors are contributing to the overall decline in business sentiment?
Weaker economic prospects for the next six months are the main reason. Decelerating domestic growth, uncertain global demand, and a lack of positive catalysts like new infrastructure projects or a stimulating Budget 2019 are also contributing.
Q.How are businesses reacting to these less optimistic prospects in terms of their operations?
How are businesses reacting to these less optimistic prospects in terms of their operations?
Firms are holding back on capacity building. Sub-indices for corporate business expansion, capital investment, and hiring have fallen in three consecutive surveys, with similar trends observed for SMEs.
Q.What is considered the biggest risk stemming from businesses' current cautious approach?
What is considered the biggest risk stemming from businesses' current cautious approach?
Firms' reluctance to engage in capacity building is the most prominent downside risk. This could negatively impact economic growth momentum in 2019 and potential economic output over the longer term.
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