Firms enter second half of 2018 in upbeat mood

> RAM Business Confidence Index shows sentiment remains positive post-general election

PETALING JAYA: Firms remain upbeat about their business outlook moving into the second half of 2018, with the corporate and small and medium enterprise indices showing positive sentiment at a respective 56.8 and 52.1 post-general election, according to the latest RAM Business Confidence Index (BCI).

“The sustained positive readings indicate Malaysia’s economic resilience in 1H 2018 is likely to carry through to the second half of the year, supported in particular by the corporate segment’s firm optimism,” the rating agency said in a statement yesterday.

RAM said the survey results also show that the outcome of the 14th general election (GE14) may have partly contributed to the more upbeat sentiment among firms.

“In this round of index calculation, we have separated respondents to preGE14 and post-GE14 buckets, based on when they were surveyed; about 35.4% of the 1,000 Corporates and 33.4% of the 2,500 SMEs were surveyed after GE14.

“We observe that the Corporate and SME indices were higher by a respective 0.7 and 2.0 points in the post-GE14 sample relative to the pre-GE14 sample.”

The survey was conducted in April and May by RAM Holdings Bhd and RAM Credit Information Sdn Bhd with data collected from close to 3,500 SMEs and corporates across five main industry segments.

The better business sentiment postGE14 is observable across all sectors for both corporates and SMEs, except for the corporate construction sector, which shaved off 1.0 point.

“The uncertainties over various property and infrastructure projects following the election victory of Pakatan Harapan may have slightly dampened the prospects of incoming contracts for corporate construction firms, as depicted by its lower turnover sub-index for the post-GE14 sample.”

Having said that, corporate construction firms remained firmly optimistic post-GE14, with an overall index value of 55.0, indicating still bullish prospects for the rest of the year.

Worth noting is that the proportion of firms citing “rising cost of doing business” as their main challenge was also much lower after GE14, possibly on expectations that the zero-rating of Goods and Services Tax (GST) and the three-month tax holiday until the SST is reintroduced in September will allow businesses to achieve some cost savings.

“Among the firms surveyed after GE14, only 22.3% of corporates and 17.1% of SMEs cited ‘rising cost of doing business’ as their primary challenge, as opposed to a respective 32.2% and 22.1% before GE14.”

Meanwhile, SMEs remain pessimistic about access to bank financing as the RAM BCI sub-index covering this aspect has been hovering within the “negative sentiment” territory for the last four surveys with 48.1 for the second half of the year.

“In view of our findings, it is important to ensure SMEs’ better access to funding, to support the country’s economic growth. Furthermore, SMEs’ turnover and profitability expectations have risen in the last three surveys – a sign pointing to potentially a greater need for financing.”

RAM cautioned that economic uncertainties linger in the short-term and domestic business may be impacted by a slew of potential new measures, such as the change in tax regime, the review of major government-linked projects and the proposed increase in minimum wages.

On the global front, the impact of the US Federal Reserve’s rate hikes and the repercussions of the ongoing US-China trade war also present challenges.

“While businesses have shown more positive confidence following the results of GE14, these prevailing uncertainties may dampen the prospect of business optimism translating fully into eventual tangible results.”