Business optimism moderates in 3Q as rising costs weigh on sentiment

KUALA LUMPUR: The overall index of the RAM-CTOS Business Confidence Index (BCI) for the third quarter (3Q) 2022 receded to 51.4 from a record high of 65.0 in the preceding quarter.

RAM Holdings Bhd said rising cost pressures that have stayed elevated in the last few months are weighing on the optimism of businesses and their profit outlook in the near term.

“Over 80 per cent of the 152 firms polled in this survey cited increasing costs as the top challenge dimming their sentiments.

“Nonetheless, surveyed firms have remained optimistic about the outlook for sales amid the strong demand recovery.

“While rising costs have been cited as a top hurdle in our surveys for three consecutive quarters, it had not dented firms’ sentiments until now.

“These costs, initially thought to be transitory, are unlikely to abate anytime soon, putting businesses under higher pressure,” the rating agency said in a statement yesterday.

For the same reason, RAM said the share of firms citing labour constraints as a significant challenge stayed high at 53 per cent amid persistent manpower shortage.

It said these challenges are affecting firms’ operations and profitability, even as the volume of incoming orders remains healthy as indicated by the positive sub-index reading of nearly 56 for revenue outlook.

“Contrast this to the profitability sub-index of just 46, denoting poor prospects for future profits.

“The margin pressure is particularly pronounced among smaller firms surveyed that voiced broadly weaker sentiments,” it added.

To sustain their business, RAM said close to 60 per cent of surveyed firms have raised prices while around 35 per cent kept prices unchanged.

Notably, around 80 per cent of micro-enterprises had not raised prices, a prominently larger share relative to the overall survey sample, with the main reason cited being the fear of losing customers, while some opt to accept lower profit margins.

Looking ahead to the next six months, some firms may need to increase prices further if they are to remain viable, it said.

Given the robust economic recovery, RAM said businesses, in general, are still optimistic about sales growth as the economy reopens.

“However, persistent spiralling costs and the challenges in hiring workers are taking a toll on firms’ bottom lines and for the micro and small and medium enterprises (MSMEs), their viability in the medium to long term.

“As such, policymakers are urged to continue providing support, reduce ‘red-tape’ as well as facilitating and offering guidance on accessing various market initiatives to vulnerable micro-enterprises and SMEs,” it said. — Bernama