Manufacturers have weaker biz sentiment in 2Q22

According to MIER, Malaysian manufacturers remain cautious of their business performance for 2Q22, as the BCI fell 4.5 points and settled below the 100-point threshold at 96.2 points

by S BIRRUNTHA / Pic by MUHD AMIN NAHARUL

THE state of inflation could push the manufacturers into an even more aggressive position, the Malaysian Institute of Economic Research (MIER) said.

MIER added that business sentiments for the second quarter of 2022 (2Q22) have worsened amid the current challenging economic conditions in its latest Business Conditions Survey Report.

“Unfavourable business confidence has been exacerbated in part by disrupted supply chains.

“Manufacturing firms also saw a drop in sales, which was due to a plunge in domestic and external demand,” it said.

According to MIER, Malaysian manufacturers remain cautious of their business performance for 2Q22, as the Business Confidence Index (BCI) fell 4.5 points and settled below the 100-point threshold at 96.2 points.

It revealed that the industrial sector expects its business performance to grow at a slower pace in 2Q22 with an index of 96.2 compared to 101 points in the preceding quarter.

“Despite the reopening of Malaysia’s international borders, which is expected to boost economic activity, businesses remain cautious about their prospects in the face of inflation and supply chain disruptions.

“A general increase in prices over time reduces Malaysian consumers’ purchasing power because a fixed amount of money allows for progressively less real consumption,” it noted.

MIER also added that the confidence index is expected to improve slightly in tandem with a GDP growth of 5% in 2Q22.

Based on the survey, the BCI Expected Index (EI) registered 89.4 points, as against the last quarter, of which BCI EI declined by 1.1 points.

“The manufacturers, however, anticipate unfavourable business conditions in 3Q22.

“There has been a drop in sales, which can be attributed to a further decrease in domestic and external demand,” it said.

Commenting further, the research firm said the manufacturing sales sub-index of the BCI fell by five points quarter-on-quarter (QoQ) to 50 points, indicating that manufacturing sales have been severely hampered.

It noted that those reporting poor sales have increased by about 25% in the current quarter, up from 15% the previous quarter.

On the other hand, it said respondents recording good sales remained unchanged.

MIER added that domestic orders clearly fell further by 5.8 points in 2Q22 to 47.1 points.

“Due to the satisfactory sales performance in the previous quarter, domestic orders for chemicals and chemical products, pharmaceutical products, rubber products and non-metallic mineral products fell are irrevocable in 2Q22.

“Food processing, paper and paper products and plastics products too have all reported decreases in local demand,” it said.

Meanwhile, MIER also highlighted that in 2Q, the export orders sub-index continued to fall to 40 points.

At this juncture, it noted that there are no strong signals seen for food processing, metal products, and electronic components and boards, communication equipment and consumer electronics almost 50% testified to increased orders while another 50% remained unchanged.

On production volume, MIER said local manufacturers’ output volume increased more favourably in 2Q22, with no major disappointments.

“The volume of industrial production increased by 9.5 points QoQ to 54.2 points. Thirty-eight percent of respondents reported an increase in industrial production volume (paper and paper products, machinery and orders metal equipment, metal products, food processing, motor vehicles and transport equipment).

“This was due to an increase in domestic orders for motor vehicles and transportation equipment, as well as export orders for food processing industries,” it said.

On employment outlook, MIER said the index increased to 29% in 2Q22 (from 16% in the 1Q22 survey results) and is expected to fall 4% over the next four months.

The research firm highlighted that the higher positive readings for 2Q22 and the next four months indicate that firms are planning on not hiring more people in the next quarter and instead maintaining manpower for the next several months.

On wages, MIER noted that overall wage costs rose slightly in 2Q22, as labour market conditions significantly improved.

It said among the firms polled, only 8% reported wage decreases, a slight increase from 3Q21.

MIER added that evidently, the chemicals and chemical products and pharmaceutical products industries experienced an equal wage situation (increase/remain unchanged/decrease) across sectors.

“With the expanded employment situation, the majority of manufacturing firms surveyed — food processing, paper and paper products, plastics products, non-metallic mineral products, metal products and furniture — reported increases in their wage costs in 2Q22.

“Wage costs are likely to adjust in the future as employment conditions deteriorate slightly.

“Seventy-one percent of the firms polled, particularly those in the chemicals and chemical products and pharmaceutical products sectors, foresee wage increases in the coming quarter,” it said.