Business Sentiment Remain Optimistic Despite Cost Concerns: Survey

Business Sentiment Remain Optimistic Despite Cost Concerns: Survey

The 2Q 2024 RAM-CTOS Business Confidence Index (BCI) survey has indicated that businesses remain broadly optimistic in Malaysia. According to the data, the overall index came in at 54.0 (1Q 2024: 53.4), staying above the neutral level of 50 for the second consecutive quarter. RAM noted that corporate sentiment reached a high of 59.3 in 2Q 2024, up from 57.1 in 1Q 2024, while SMEs remained optimistic at 52.6 slightly down from 53.0 in the previous quarter.

Insights into the survey showed that respondents were more sanguine about their business performance outlook in 2Q 2024, with q-o-q improvement in both the sales (+2.1 points to 56.4) and profitability sub-indices (+1.5 points to 50.5). However, profitability sentiment remains relatively soft, just above the 50 neutral mark, inhibited by ongoing cost pressures. Rising cost of doing business continue to top the list of challenges, cited by nearly 80% of the 109 respondents, although this is a decrease from 90% in the previous quarter.

“It is heartening to see positive sentiments in consecutive quarters, which bucks the trend of the past year. As business agility remains key in the coming quarters, we will continue to support businesses by providing real-time data analytics, digital solutions and on-ground training opportunities to ensure that SMEs are equipped to prosper through good times and remain prepared for future challenges,” said Erick Hamburger, Group CEO of CTOS Digital Berhad.

Diesel subsidy retargeting appears to have minimal impact on sentiment

The survey results also showed that the recent diesel subsidy retargeting did not appear to have dented sentiment of respondent firms. The 2Q 2024 survey was conducted from 27 May to 18 June. Based on responses received prior to the policy implementation on 10 June, overall sentiment index for corporates and SMEs would amount to 58.0 and 52.9 respectively. Reponses received after 10 June showed a higher sentiment index for corporate at 60.7, while SME sentiment was marginally lower at 52.2. 

As for the upcoming phase-out of blanket RON95 subsidies, around 67% of the 109 firms polled anticipate price increases for their products or services. Around 70% of respondents reported that RON95 constitutes up to 10% of their overall business costs.

Concerns over increase in labour costs from progressive wage policy

RAM also highloghted thay firms are most concerned about the impact of higher labour costs arising from implementation of the progressive wage policy (PWP), as cited by around 61% of firms. This is followed by uncertainties regarding productivity benchmarks (46%) and compliance costs (42%). Despite these concerns, about 78% of firms foresee some benefits from the adoption of PWP, with enhanced employee morale and satisfaction (53%), greater talent attraction and retention (47%) and improved employee productivity (40%) being the most cited benefits.

Need for increased communication and marketing of PWP

While the PWP is a much-discussed plan among policymakers and researchers, efforts to educate and market it to businesses can be further improved. Our survey indicates that some 52% of respondents have heard of PWP but are not familiar, while almost a quarter stated they are not aware of it at all. Interest is also fairly low, with only about 7% of firms surveyed indicating they would voluntarily participate and the majority, circa 64%, are undecided. 

“We welcome the implementation of the PWP, given the potential benefits of a restructured wage system, which links wage increases to training and upskilling. However, a more broad-based adoption is needed to realise its full benefits to the nation as a whole,” said Chris W.K. Lee, RAM Holdings Berhad Group CEO and Executive Director.

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