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Growing business confidence

Growing business confidence

05 Aug 2022


Despite global and domestic headwinds, the local business sentiment is improving with many companies planning for more capital expenditure in the second half of 2022, according to the latest business and economic conditions survey by The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM).

The bi-annual survey, which covered the first half of 2022 and business expectations for the second half, had received response from 860 companies, of which 91.7% were small and medium-sized enterprises or SMEs, with the balance being large enterprises.

In terms of economic sectors, the majority of the 860 companies were from services (61.7%), followed by manufacturing (19.5%), construction (12.3%), agriculture (5.6%) and mining (0.8%).

At an online media briefing yesterday, Socio-Economic Research Centre executive director Lee Heng Guie said a higher percentage of survey respondents (26.1%) expect “better” business prospects in the second half compared with 17.2% in the first half.

“It is encouraging that 69.5% of respondents across most sectors reported that their sales had recovered or are even higher compared to the pre-pandemic level versus 56.5% surveyed previously,” he noted.

Regarding the sales performance, Lee pointed out that 49.8% of respondents saw an increase in sales revenue in the first half, thanks to the reopening of the economy and international borders.

“Slightly lower respondents (47%) expect better sales revenue in the second half,” he said.

The survey also pointed towards brighter investment prospects, with nearly two-thirds of respondents (65.1%) having increased their capital expenditure in the first half, in tandem with the improvement in business activities.

“Most companies plan to invest further in the second half, albeit at a lower percentage share (57.2% versus 65.1% in the first half), while 37.3% of respondents will maintain their capital investment. This indicates a moderate recovery in business sentiment, backed by the continued economic recovery,” said Lee.

As for business operations, the survey indicated that overall production levels improved in the first half despite a shortage of workers and the higher cost of raw materials.

About 74.8% of survey respondents would either increase or maintain their production levels in the second half, and remained cautious about both external and domestic demand.

Most respondents operated below 75% capacity utilisation in the first half and would likely maintain the same level in the second half, as they are constrained by the shortage of workers.

Regarding manpower, the survey indicated that most sectors kept their employment levels unchanged in the first half and would likely maintain the same levels in the second half.

“Employees’ wages have increased due to the higher minimum wage,” Lee noted.

Also, more than 50% of respondents in most sectors, especially manufacturing and construction, reported substantial increases in the price of local and imported raw materials at a magnitude of more than 10%.

“They expect price increases to persist in the second half. The Russia-Ukraine war-induced rising energy and commodity prices as well as global supply shortages have exacerbated the situation of rising costs, which have weighed on businesses’ costs and margins. The imbalances between supply constraints and recovering demand coupled with a high cost of production will hamper the business recovery trajectory,” said Lee.

He pointed out that moving into the second half, a majority of the respondents remained cautious about business, cash flow and debtors’ conditions.

“For 2023, a high percentage of respondents (47.7%) hold a ‘neutral’ view on economic prospects while 39.8% expect ‘better’ prospects. Lingering worries about global stagflation, rising recession risks in the US economy and Europe, faster global monetary tightening as well as domestic issues dampened business sentiment,” said Lee.

ACCCIM president Tan Sri Low Kian Chuan, who was also present at the briefing, said while the survey indicated that the economic recovery continued in the first half, albeit at an uneven pace among different business sectors, the business community is generally taking a neutral view about both economic and business conditions.

“The survey findings indicated that most respondents remained concerned about how both external headwinds and domestic issues would impact the pace of economic and business recovery in the second half and in 2023,” said Low.

He pointed out that domestic challenges include the rising cost of raw materials, a shortage of workers, increased operating costs and the impact of the weakening ringgit.

“Rising inflation and the high cost of living are expected to slow down consumer spending somewhat, and hence, impact business sales revenue in the second half,” said Low, adding that ACCCIM had presented the preliminary results of the survey to the National Economic Action Council in June.

Source: The Star