Business optimism dips amid economic headwinds: RAM index

PETALING JAYA: Ratings Agency (RAM) has released the results of its latest RAM Business Confidence Index readings for fourth quarter 2018- first quarter 2019, which indicate that firms remain optimistic going into 2019.

Although still in territory, the corporate index declined 1.1 points from the 3Q-4Q 2018 survey, it said in a statement.

RAM said the corporate index reached 55.7 while the small and medium enterprise (SME) index came in at 53.5, in which the latter showed improvement but still lagged behind its corporate counterpart.

“This signals the slight moderation in firms’ sentiment on their business performance and demand prospects in the next six months,” it added.

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.

Additionally, RAM said the latest survey results also show that firms with more exposure to the ongoing trade spat between the US and are now less optimistic.

RAM noted that the export-oriented corporate index has been declining since 2017, in which the trend is consistent with the slower export growth observed to date, following the rebound last year.

“Given the forward-looking nature of the survey responses, we do not expect export growth to pick up in the near term, although growth should remain sturdy given the still-positive reading of 57.6.

“The external downside risk pressures have also weakened the sentiment of the manufacturing corporates and SMEs,” RAM said.

Apart from the external outlook, RAM said that manufacturers are also undergoing a transitional period on account of the reinstatement of the sales and services tax (SST).

“This affects their expectations on future demand and profitability; the corporate turnover and profitability sub-indices dipped a respective 9.9 points and 10.3 points to 50.8 and 49.5 while those for SMEs fell 1.7 points and 2.3 points to 52.0 and 51.6,” it added.

“This tax impact is not only confined to the manufacturing sector as the margins of the wholesale sector, which serves as a bridge between manufacturers and retailers, may also be compressed by the potential pass-through of additional SST expenses by manufacturers,” it added.

On a brighter note, RAM said that transport and storage firms’ sentiment on business performance remained strong, with the overall sentiment reading for transport and storage corporates rising 1.9 points to 62.1 – the only corporate sector to post an increase.

Its SME counterpart also improved 1.8 points to 55.1, as sentiment on turnover and profitability became positive.

RAM said the more upbeat outlook on this sector is mainly attributable to logistics, shipping and oil tanker services (particularly oil and gas support services), which are enjoying healthier business prospects amid strong oil prices.

Moving forward, it said short-term economic uncertainties remain, most notably from the repercussions of the ongoing US-China trade war on the manufacturing sector, and the ensuing second-round effect on the domestic sectors.

Therefore, it said more guidance on future economic policies that will shape the overall business environment will be crucial to business confidence among firms, and will help drive sustainable economic activities.

Source: The Sun Daily

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