Corporates less optimistic going into 2019 as sentiments dip
KUCHING: Statistics from the latest RAM Business Confidence Index (RAM BCI) for the fourth quarter of 2018 (4Q18) and the first quarter of 2019 indicate a slight moderation in firms’ sentiment on their business performance and demand prospects in the next six months.
The Corporate Index reached 55.7 while the SME Index came in at 53.5; the latter showed improvement but still lagged behind its corporate counterpart. Although still in positive sentiment territory, the Corporate Index declined 1.1 points from the 3Q or 4Q18 survey.
This signals the slight moderation in firms’ sentiment on their business performance and demand prospects in the next six months, RAM said in a statement yesterday.
“The latest survey results also show that firms with more exposure to the ongoing trade spat between the US and China are now less optimistic.
“The export-oriented Corporate Index has been declining since 2017; this trend is also consistent with the slower export growth observed to date, following the rebound last year.
“Given the forward- looking nature of the survey responses, we do not expect export growth to pick up in the near term, although growth should remain sturdy given the still-positive reading of 57.6,” it added. “The external downside risk pressures have also weakened the sentiment of the manufacturing Corporates and SMEs.”
Apart from the external outlook, RAM said manufacturers are also undergoing a transitional period on account of the reinstatement of the Sales and Services Tax (SST), which commenced on September 1.
This affects their expectations on future demand and profitability; the corporate turnover and profitability sub-indices dipped a respective 9.9 points and 10.3 points to 50.8 and 49.5 while those for SMEs fell 1.7 points and 2.3 points to 52.0 and 51.6.
“After several months of frontloaded purchases, during which downstream and final consumers capitalised on the tax-free period from June to August, turnover expectations are envisaged to taper off from these highs.
“Additionally, the incremental cost element of the SST for some firms will also affect margins, especially when there is less scope to pass on such costs,” it explained.
“This tax impact is not only confined to the manufacturing sector as the margins of the wholesale sector, which serves as a bridge between manufacturers and retailers, may also be compressed by the potential pass- through of additional SST expenses by manufacturers.
“As such, this sector also registered a drop in their sentiment on turnover and profitability, by a respective 6.3 and 7.0 points. Greater concern over heightened competition within the wholesale sector1 also limits firms’ ability to passonthiscost, thuscompounding their pessimism.”
RAM went on to note that trends in sentiment of the other sectors are sector-oriented, such as the steep decline in the agriculture/ mining performance- based indices to negative sentiment territory due to sector-specific policy changes, price weakness and demand challenges.
On a brighter note, transport and storage firms’ sentiment on business performance remained strong, with the overall sentiment reading for transport and storage corporates rising 1.9 points to 62.1 - the only Corporate sector to post an increase.
Its SME counterpart also improved 1.8 points to 55.1, as sentiment on turnover and profitability became positive. The more upbeat outlook on this sector is mainly attributable to logistics, shipping and oil tanker services (particularly oil and gas support services), which are enjoying healthier business prospects amid strong oil prices.
“Moving forward, shortterm economic uncertainties remain, most notably from the repercussions of the ongoing US- China trade war on the manufacturing sector, and the ensuing second-round effect on the domestic sectors.
“More guidance on future economic policies that will shape the overall business environment will be crucial to business confidence among firms, and will help drive sustainable economic activities,” it concluded.