Business sentiment seen broadly optimistic

RAM: Sentiment supported by faster growth, better trade figures

PETALING JAYA: Business prospects remain broadly positive for the rest of the year, in line with the acceleration of economic growth momentum and improved trade figures, according to RAM Holdings Bhd.

In the rating agency’s latest Business Confidence Index, it noted that the rather bullish sentiment was underpinned largely by the improvement in confidence logged by the small and medium enterprises (SMEs).

“Firms continued to be optimistic about business prospects for the third and fourth quarters (Q3-Q4) of 2017, in the third successive positive sentiment reading of the survey-based RAM Business Confidence Index.

“SMEs’ sentiment rose to 54 from 52.1 while the sentiment among the corporates likewise stayed positive at 55.3, albeit dipping slightly from 55.8,” said RAM in a press release.

Strong momentum in trade activities has led export-oriented businesses to continue registering higher index values, compared to more domestic-oriented firms.

Between December 2016 and June 2017, Malaysia recorded seven consecutive months of double-digit export growth.

As for June this year, exports rose by 10% or RM73.10bil, albeit well below the median of 18.3% in a survey of economists.

Overall, trade was up 7% at RM136.3bil.

Malaysia also recorded a 34.7% year-onyear higher trade surplus in the second quarter of this year.

RAM also pointed out that greater business expansion and more hiring could be expected in the second half of the year, following the improvement in economic activities.

“All seven component indices for both corporates and SMEs registered values of above 50, suggesting broad-based confidence about business prospects for the second half of 2017.

“Across the board, businesses indicated a higher likelihood of undertaking business expansion, increasing hiring and greater capacity utilisation,” said RAM.

Moving forward, concerns on profitability continue to linger, despite the generally sanguine sentiment on business outlook among the surveyed firms.

RAM indicated that rising cost of production and sluggish demand conditions are the key reasons for the concerns.

Notably, the profitability component index of both SMEs (50.6) and the corporates (51.9) lags all other components.

“That said, we highlight that the previously negative profitability sentiment among SMEs has rebounded for this period, as firms generally expect to chart a higher turnover in the second half of 2017.

“Meanwhile, the corporates expect a buildup in inventory, which will compel firms to price their products competitively, and a higher production cost to exert pressure on margins, going forward,” it stated.

In the recent Business Conditions Index (BCI) by the Malaysian Institute of Economic Research (Mier), the economic think-tank projected business prospects to deteriorate in the third quarter of the year, with production and export orders anticipated to decline in the coming months.

This was despite the continued improvement in BCI from the fourth quarter of 2016.

In the second quarter of 2017, the index gained 1.4 points to register 114.1 points.

Firms continued to be optimistic about business prospects for Q3-Q4 of 2017, in the third successive positive sentiment reading of the survey-based RAM Business Confidence Index.