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Business conditions record significant recovery

Business conditions record significant recovery

05 Feb 2021

Manufacturers maintained a high level of confidence in the fourth quarter of 2020 (4Q20) as there were increase in sales, domestic and export orders due to the improvement in business sentiments during the economic recovery period in the quarter.

The Malaysian Institute of Economic Research business conditions index (BCI) increased by 29.1 points in 4Q20 to 115.4 points and it settled above the threshold level indicating an increase in business sentiments.

On a year-on-year (YoY) basis, the index expanded 27.1 points compared to the previous year which was -6.9 points.

“This is a positive sign for Malaysia, as the country has been able to find effective ways of handling the Covid-19 pandemic.

“Apart from the active involvement of the Malaysian government in the economy, through the Prihatin Rakyat Economic Stimulus Package and the short-term National Economic Recovery Plan, an additional stimulus package was announced on Sept 23, 2020. These programmes have had a significant effect on the business sector.

A positive outlook is also expected in the quarter ahead with over half of the manufacturers (59%) foreseeing to retain their current employees through 1Q21, while 28% of them are looking to hire new employees in the next quarters.

About 63% of manufacturers plan to retain the current domestic selling prices, which would likely improve business conditions in 1Q21 compared to 4Q20.

The BCI indicated an increase of 23.7 points in 4Q20 on the manufacturing sales to 59.4 points compared to 35.7 points in 3Q20.

Employment conditions slightly improved in the quarter with 28% of respondents increasing the number of employees compared to only 16% in the preceding quarter.

The contribution came mainly from rubber products, electronic components and boards, communication equipment, consumer electronics, and motor vehicles and transport equipment.

About 41% had retained their employees in the quarter while 31% had reduced the number of employees.

The quarter also saw 31% of respondents increased wage costs which represented seven percentage points reduction compared to the previous quarter.

Some 44% of the respondents recorded good sales performance including wood products, paper and paper products, rubber products, electronic components and boards, communication equipment, consumer electronics, motor vehicles and transport equipment, furniture and other manufacturing, and repair equipment.

In contrast, sectors that recorded poor performance were textile, non-metallic mineral products, metal products and machinery and equipment which accounted for 25% of the respondents.

Domestic orders continued an upward trend and increased 22.5 points from the previous quarter to settle at 66.1 points while on a yearly basis it registered an increase of 30.7 points.

Export orders increased 25.9 points YoY and 20.9 points quarter-on-quarter to 60.7 points mainly on the back of food processing, wood products and paper products, among others.

Conversely, 25% of respondents comprising beverages and metal products sectors saw a decline in exports.

The firm also maintained its GDP growth rate of between 5.2% to 6.7%.

Source: The Malaysian Reserve

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