Business confidence into 1H19 at 2-year low on weak economic outlook

Weak economic prospects a key factor driving the weaker sentiment followed by rising costs and competitions

By NG MIN SHEN / Pic By TMR File

Business confidence going into the first half of 2019 (1H19) has dropped to the lowest level in two years as a result of the challenging economic landscape, according to the RAM Business Confidence Index (RAM BCI).

Based on the latest data from the survey compiled by RAM Holdings Bhd and RAM Credit Information Sdn Bhd, the corporate index and small and medium enterprises (SMEs) index for the first quarter of 2019 (1Q19) to 2Q19 fell to 55.1 and 51 from 55.7 and 53.5 in 4Q18 to 1Q19 respectively.

“These indices are at their lowest level since the inception of the RAM BCI two years ago. While an index value of above 50 still denotes positive sentiment, the current downtrend suggests that businesses have a less upbeat outlook on 2019,” RAM Holdings said in a statement yesterday.

Weak economic prospects was a key factor driving the weaker sentiment among the 3,500 firms polled, as well as the most frequently cited challenge for both the corporate and SME participants, followed by rising cost of doing business and increased competition.

The number of firms citing “weak economic conditions” as their main challenge within the period jumped to 41% (corporate) and 41.2% (SME) of the overall firms surveyed in their respective segments.

“Decelerating domestic growth, uncertain global demand and investment activities as well as a lack of positive catalysts — including the relatively neutral Budget 2019 — all played a part in the generally weaker business sentiment for the next six months,” RAM Holdings said.

It added that the construction sector was the least bullish among both corporates and SMEs, with the corporate construction sector declining for the third consecutive time to 53, while the SME equivalent had a negative sentiment reading of 49.7.

“Without any new growth catalyst amid the overhang in the property segment, plus the shelving of new big-ticket infrastructure projects, it is not surprising that the construction sub-indices have hit record lows,” it added.

The outlook for the SME retail sector also slipped back into the negative territory after a brief expansionary momentum following the tax-holiday period from June to August 2018.

Uncertain global and domestic economic prospects have led consumers to be more prudent once again with their spending, leading to weaker sentiment on retail consumption in 2019.

Amid weaker prospects, firms are also holding back on capacity building, with the sub-indices that track corporate business expansion, capital investment and hiring having fallen to their lowest levels since the inception of the RAM BCI after having declined in three consecutive polls.

The capacity-building sub-indices for SMEs also pulled back from the last survey and remain below that of corporates, RAM Holdings said.

“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,” the credit research and advisory services group cautioned.

It said this rings particularly true for SMEs, which are more vulnerable and sensitive to immediate economic challenges.

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.

The RAM BCI is a quarterly survey on Malaysian business sentiment designed to measure forward-
looking expectations, conducted by indication of positive and negative sentiments on seven key operational aspects over the next six months, namely turnover, profitability, business expansion, hiring, capital investment, capacity utilisation and access to bank financing.

The index is based on data from a survey of close to 3,500 SMEs and corporates across five main industry segments.