Business optimism to remain sluggish until Q1 2020, RAM survey shows

PETALING JAYA: Overall business optimism in Malaysia is expected to remain sluggish in the fourth quarter of this year and throughout the first quarter of 2020, according to the latest RAM Business Confidence Index (BCI).

The Corporate Index slipped 0.2 points to 53.2, while the SME Index rose 1.4 points to 53.2.

“Although the latest readings for corporates and SMEs converged at 53.2, we highlight that these two cohorts face different circumstances and prospects,” said the rating agency.

It noted that the greater optimism sentiment of the SMEs is driven by access to bank financing and improved performance indicators.

As SMEs’ performance is highly influenced by new orders and projects, their business prospects tend to be quite volatile.

Meanwhile, the persistently sluggish sentiment among corporates signals their view on the current economic environment, which has been plagued by uncertainties since the fourth quarter of the previous year.

“At the same time, US-China trade tensions have worsened, along with firmer signs of weaker global demand this year,” said RAM.

It pointed out that a higher proportion of firms (45.6% for surveyed corporates and 44.8% for SMEs), now cite “weak economic conditions” as their main challenge in the next six months.

The rating agency said the prolonged global uncertainties have also led to large swings in firms’ business performance expectations, underlining the challenges faced by their business operations.

“Previously a trait only observed among SMEs, corporates now also have yo-yoing expectations on their performance in 2019.”

It noted that the volatility is significantly stronger among export-oriented firms given their direct exposure to the US-China trade war.

From its interaction with selected respondents, firms indicated softer demand from China and local clients that service the Chinese market amid the impact from the US-China trade spat.

“Moreover, order sizes have shrunk and become lumpier as their clients have become more cautious in inventory management,” said the rating agency.

In turn, such uncertainties have affected corporates’ capacity-building intentions, which have undergone successive declines through most of 2018 and 2019.

However, the latest survey results have suggested that the earlier downtrend in capacity-building activities has been arrested, with improvement sighted in the last two surveys.

The survey found that the majority of firms are operating at normal capacity, with little sign of industrial slack as well as maintaining their headcount.

Meanwhile, SMEs’ better access to bank financing is another element that will support capacity-building and operations.

Released quarterly, the BCI is based on a survey of about 2,000 SMEs and corporates across five main SME and four main corporate industry segments.

source https://www.thesundaily.my/business/business-optimism-to-remain-sluggish-until-q1-2020-ram-survey-shows-FA1406227