Manufacturers to remain challenged in 1H21

by NUR HAZIQAH A MALEK / pic by ARIF KARTONO

THE Business Conditions survey has revealed a cautious outlook for businesses in the first half of 2021 (1H21) following the conservative pickup in 2H20.

The 18th edition of the survey was released by the Federation of Malaysian Manufacturers (FMM) and the Malaysian Institute of Economic Research (MIER).

FMM president Tan Sri Datuk Soh Thian Lai said except for production cost and employment, both of which are expected to see uptrends, the outlook for local and export sales, production, capacity utilisation and capital investment is cool going forward.

“With constraints on mobility and demand going forward, respondents are cautious on their business projections for 1H21, as reflected in the latest forward-looking indicators of the survey.

“While most of these indicators have improved from the previous period, their persistent stay below the optimism threshold is an implication that cautiousness among manufacturers has continued to prevail in their business outlook for the next six months,” he said in a statement.

The expected index for business activity rose to 87 which is below the optimism threshold, showing that respondents are cautiously hopeful of a pick-up in businesses soon.

Out of the total number of respondents, 23% replied positively, while 41% did not foresee changes in the months.

Soh said the prognosis for local and export sales for 1H21 is equally subdued.

“Registering below the optimism threshold, both the expected indexes for local and export sales stood at 74 and 88 respectively, reflecting, once again, cautiousness on the part of the respondents.

“Favourable replies from 14% of those who sell locally and 24% of those who export indicate that export sales are expected to perform better than local sales in 1H21,” he said.

The indices for expected production volume and capacity utilisation are also lower than the optimum threshold at 91 and 92 respectively, again showing that respondents are cautiously projecting a pick-up.

Twenty-six percent of the respondents are planning to increase production volume, while 25% are considering increasing capacities soon.

The expected cost of production index also rose to 155, reflecting respondents’ inferring that production is likely to cost more in the coming months.

Soh said in 1H21, capital expenditure (capex) and employment are expected to shift higher.

“As shown by the expected indexes which increased from the preceding survey to 98 and 102 in the current survey, respectively.

“Among the respondents, 24% are planning to increase their capex soon and 19% have new recruitment plans for 1H21,” he said.

The survey also showed that employment was steady in 2H20, as over 68% of the respondents managed to maintain their existing workforce to date and only 3% had to resort to retrenchment.

Of the total, 16% increased their headcount, while 12% did not replace any employees.

Soh said going into 2021, employment in the manufacturing sector is expected to remain stable as well, with 54% and 26% of the respondents likely to retain their existing workforce and hire more workers this year respectively.

“Only 2% are contemplating retrenchment,” he said.

He added that a breakdown of those planning to increase their workforce in 2021 shows that most are estimating an increase of up to 10%.

“In 2021, most of the recruitment will be in the operations category, followed by technical and marketing.

“Less than 2% planned to hire top level managers. Other positions that will likely be employed are middle management personnel, supervisors and support or clerical staff, as indicated by 11% to 14% of the respondents,” he said.

As such, Soh said productivity-related strategies that respondents are planning to undertake for the period will focus on training, upskilling and implementation of lean manufacturing.

“Automation is the most popular technology-related strategy that 55% of the respondents will embark on in the period, followed by digitalisation and IR4.0, with 37% and 28% responses respectively,” he said.

Meanwhile, 23% will establish channels for digital sales in the coming months.

Soh added that respondents will also undertake market expansion, according to 54% respondents.

“Introduction of new products will be implemented by 43% of the respondents, while 30% will diversify their business activities and 26% will deploy research and development and innovation.

“Other than that, 25% will accelerate their key projects and 22% will expand their local supply chain in the next six months,” he said.

On government aid, 75% respondents supported a reduction in corporate tax, followed by 54% hoping for electricity and natural gas discount and 43% for extension on targeted wage subsidy for all workers in all sectors.

“Additional export incentives, and lower regulatory and statutory costs were also suggested by respondents,” he said.

The survey drew 652 respondents nationwide and was conducted between Dec 23, 2020, and Jan 31, 2021, tracking business confidence via the FMM-MIER Business Conditions Index, cove-ring the performance between 2H20 and the outlook moving into 1H21.