Business activities expected to remain flat

Tightening of the Covid-19 lockdowns put further strains on the manufacturing sector

by NUR HANANI AZMAN / pic by MUHD AMIN NAHARUL

ALMOST half or 48% of businesses in the essential sectors were affected with the lockdowns despite being allowed to operate in the Phase 1 and 2 of the National Recovery Phase (NRP).

The 19th edition of the FMM-Malaysian Institute of Economic Research Business Conditions Survey revealed that business activity plummeted in the first half of 2021 (1H21) amid a tightening of the Covid-19 lockdowns which put further strains on the manufacturing sector.

Another 15% were affected by the NRP Phase 1 (NRP1), NRP2 and Enhanced Movement Control Order (EMCO), while 13% were affected by the EMCO alone.

The NRP1 and EMCO also affected another 12% of the respondents. As a result, 44% said their businesses can be sustained for one to six months only.

Among them, 22.4% estimated their business sustainability at one to three months, while another 21.5% believed that their businesses can sustain for four to six months.

A sustainability period of more than 12 months is the assessment of another 12% of the respondents. Only 19% were not affected at all.

Due to the lockdowns and manpower capacity restrictions on business and operations, 55% of the respondents had their orders cancelled due to their inability to deliver, while 40% had their 2H21 order contracts reviewed and 38% had to incur storage and demurrage costs for their cargoes which were stuck at the port/airport.

The current sluggish business conditions are expected to continue in the 2H21 as the Covid-19 pandemic continues to cast uncertainties on the economy.

Federation of Malaysian Manufacturers president Tan Sri Soh Thian Lai (picture) said business activity for 2H21 is expected to remain as slow as in 1H21.

“The index for expected business activity fell to 60 from 87 points previously, with 55% of the respondents anticipating their business to be equally slow for the rest of the year. Only 15% are positive that their business will pick up soon.

“The expected indexes for both local and export sales declined to 51 and 68 respectively, an implication that domestic and external demand will likely remain weak in the coming months as well. 59% of the respondents are forecasting poor local sales in 2H21, with the same expectations from half of those who export,” he said in a statement yesterday.

Weak sales are dampening the outlook for production and capacity utilisation.

Both the expected indexes for these indicators fell from the previous survey to 62 and 60 respectively, suggesting that a decrease in production and capacity utilisation can be expected in 2H21.

The expected index for cost of production has risen again. At 166, it infers that production will be costlier soon, with 72% of the respondents projecting this for 2H21.

He said a slowdown in capital expenditure (capex) is in the pipeline for now, as shown by the expected index for capex which dipped to 81 in the latest survey.

“While 37% of the respondents are contemplating cutting back on their capex soon, 18% are considering increasing theirs.

“Employment is expected to remain flat in the coming months, as indicated by the index for expected employment which, at 87, had sunk below the optimism threshold this time,” he added.

This implies that jobs in the manufacturing sector will be harder to come by in the coming months.

A quarter of the respondents intend to reduce their workforce, while 12% are planning to increase their headcount and the remaining 63% will maintain their workforce.

Except for cost of production, all the other current and forward-looking indicators in the latest survey registered lower than 2H20, a sign that 1H21 had posed to be a very challenging period for manufacturers.

Soh added that majority of the respondents opined that employers should ensure that all their employees are fully vaccinated, including booster shots in 2022, as well as require all new employees to be vaccinated before commencing work.

“Other government assistance required in 2021/2022 — Corporate Tax reduction topped the list, followed by electricity and natural gas discounts and extension of targeted wage subsidy to all workers in all sectors.

“Delay/reduction in regulatory cost, including new laws and regulations in the pipeline with cost impact ranked fourth on the list, while the fifth most popular suggestion was the lowering of statutory costs (licensing, quit rent, assessment),” he said.