Malaysian businesses are displaying less optimistic sentiment on prospects for the next six months as the RAM Business Confidence Index (RAM BCI) fell to its lowest level since its inception two year ago. RAM said in a statement today that the corporate and the SME indices of the RAM BCI declined to 55.1 and 51.0 respectively, although the reading above 50.0 still denotes positive sentiment.
The RAM BCI is a comprehensive survey jointly conducted by RAM Holdings Bhd and RAM Credit Information Sdn Bhd, on business sentiment in Malaysia. Released quarterly, the index is based on data from a survey of close to 3,500 SMEs and corporates across five main industry segments respectively.
The cooler sentiment is attributable predominantly to the weak economic prospects in the next six months, with a number of firms citing this as the main challenge, rising to 41.2% and 41% both corporate and SME segments.
Decelerating domestic growth, uncertain global demand and investment activities and a lack of positive catalysts, including the relatively neutral Budget 2019, all play a part in the generally weaker business sentiment on the next six months.
On a sectoral basic, the construction sector appeared the least bullish with the SME sector recording a reading at 49.7 while the corporate sector declined for the third time in a row to 53.0.
Without any new growth catalyst amid the property overhang, plus the shelving of new big-ticket infrastructure projects, it is not surprising that the construction sub-indices have hit record lows, RAM said.
Another sector that showed pessimism in the Q1-Q2 2019 survey is SME retail as its performance outlook slipped back into negative territory after a brief expansionary momentum that had been aided by the tax-free window from June to August 2018.
“Faced with uncertain global and domestic economic prospects, consumers are once again more prudent with their spending, leading to weaker sentiment on retail consumption in 2019,” it added.
On the back of weaker prospects, the firms are also holding back from capacity building with the sub-indices tracking corporate business expansion, capital investment and hiring recording a fall in three consecutive surveys.
Likewise, the capacity-building sub-indices for SMEs pulled back from the last survey and remain below those of corporates.
RAM noted that firms’ expressed reticence on capacity building remains the most prominent downside risk, as it could weigh on the momentum of economic growth in 2019 and potential economic output over the longer run. This is particularly true in respect of SMEs, which are more vulnerable and sensitive to immediate economic challenges.
“That said, more guidance on future economic policies that will shape the overall business environment will be crucial to building business confidence among firms, potentially being the game changer for a more resilient growth trajectory this year,” it added.