Business confidence for Q3 and Q4 still broadly positive: RAM

PETALING JAYA: Firms continued to be optimistic about business prospects for the third and fourth quarters of 2017, the third successive positive sentiment reading of the survey-based RAM Business Confidence Index.
Of the sectors surveyed for the index, the retail sector remains the most cautious about its performance in the next six months, given prudent consumer spending on discretionary items.
SME sentiment rose to 54.0 from 52.1, while corporate sentiment likewise stayed positive at 55.3, albeit dipping from 55.8.
“Across the board, export-oriented businesses continued to register higher index values, in contrast with domestic-oriented firms. This is consistent with the strong momentum in trade activity, evidenced by seven consecutive months of double-digit export growth between December 2016 and June 2017,” RAM said.
Within the corporate segment, the agriculture/mining sector recorded the highest and most improved index reading of 57.6, largely driven by positive hiring and business expansion intentions, consistent with the recovery trend in the oil palm sector.
On the other hand, the transport/storage sector was the least bullish at 53.0, in view of a sluggish order book in some key sectors, notably oil and gas (O&G) and related support services.
In the SME segment, the business services sector was once again the most sanguine with a reading of 56.4 while the retail sector was the least positive at 51.6, primarily due to the weak outlook on retail spending which had persisted from the previous survey.
All seven component indices for both corporates and SMEs registered values of above 50, suggesting broad-based confidence about business prospects for the second half of 2017. Across the board, businesses indicated a higher likelihood of undertaking business expansion, increasing hiring and greater capacity utilisation.
These trends are in tandem with an improved economic growth momentum, as seen from the higher-than-expected Q4 2016 gross domestic product (GDP) growth of 4.5% and Q1 2017 GDP growth of 5.6%.
Nevertheless, headwinds to the pace of profitability growth in the next six months was again a key concern for all firms surveyed, as they continue to be wedged between the rising cost of production and sluggish demand conditions.
“As such, the profitability component index of both SMEs (at 50.6) and corporates (at 51.9) still lags all other components. That said, we highlight that the previously negative profitability sentiment among SMEs has rebounded for this period, as firms generally expect to chart a higher turnover in 2H 2017,” RAM said.
Meanwhile, corporates expect a build-up in inventory, which will compel firms to price their products competitively, and a higher production cost to exert pressure on margins.