Uptick in business sentiments in 1Q23 overshadowed by rising costs

BUSINESS sentiments for the first quarter of 2023 (1Q23) have improved as challenges faced inflated costs continue to plague by firms eased slightly, however, inflated costs continue to plague small and medium enterprises (SMEs). 

The RAM-CTOS Business Confidence Index (BCI) revealed that overall BCI for 1Q23 rose to 51.4 from 46.2 in the previous quarter.

While sentiments across several sub-indices showed improvement, firms remain pessimistic on their profitability outlook (sub-index reading: 40.4) amid elevated cost pressures, said RAM-CTOS, adding that an index of 50 delineates positive and negative sentiments.

Of the 122 firms polled in 1Q23, chiefly SMEs, almost 80% are grappling with rising costs as their top challenge, it said in a statement last Thursday. 

“The return to positive sentiment this quarter is a good sign for the economy as SMEs play a crucial role in driving economic growth. 

“In 1Q23, CTOS SME subscribers accessed 30% more business reports compared to the same period last year. Businesses carrying out additional due diligence on new customers and re-evaluating existing customers is a good indicator that they are ramping up operations and productivity, which is in line with the RAM CTOS BCI business sentiment findings” said CTOS Digital Bhd Group CEO Erick Hamburger.

Surveyed firms more receptive to revised Budget 2023

RAM-CTOS believes that the recently tabled revised Budget 2023 was generally well-received by respondent firms and may have partly contributed to the better sentiments in the survey.

It stated that about 30% of firms polled thought measures in the revised budget would help their business — a much higher figure compared to the 9% in the 4Q22 survey, for the same question.

However, it noted that some 18% of respondents did not find the revised budget helpful, a markedly lower number in contrast with 56%in the previous quarter.

“Not surprisingly, the more positive reaction may be attributed to the slew of “goodies” announced, particularly for micro, SMEs (MSMEs),” it said. 

The revised Budget 2023 is the largest on record, with an allocation of RM386.1 billion, which includes measures such as a cut in the corporate tax rate and various loan and financing schemes for MSMEs. 

Elevated costs still the bane of SMEs 

RAM-CTOS said the majority of firms it surveyed (56%) increased prices in the last six months to combat rising costs. 

However, it said that this was inadequate to fully arrest earnings deterioration. 

“Of the respondents that initiated price increases, around half still reported narrower profit margins. Most likely, firms had not fully passed on cost increases for fear of losing customers,” it said. 

Instead, the survey found that 43% of firms that raised prices experienced customer churn. 

Policy support remains crucial for MSMEs

Notwithstanding the improvement in business prospects in 2023, RAM-CTOS noted that elevated cost pressures remain the current significant hurdle for MSMEs. 

“The slew of policy measures in the revised Budget 2023, which were generally well-received by MSMEs, would help them overcome these challenges.

“The measures, particularly loan and financing schemes, need to be made easily accessible and disbursed expediently to qualifying firms to support their viability”, said RAM Holdings Bhd group CEO and ED Chris Lee. 

The RAM-CTOS BCI is a comprehensive survey jointly conducted by RAM and CTOS, starting 1Q22, on forward-looking business sentiment among SMEs. 

Released quarterly, the index offers a timely barometer of future economic activity to guide businesses’ investment decisions and planning as well as provide inputs for strategic policy-making by various stakeholders of the economy. — TMR 


  • This article first appeared in The Malaysian Reserve weekly print edition