Corporates more buoyant on business outlook

KUALA LUMPUR: Small and medium enterprises (SMEs) are slightly less positive on the business outlook for the first half of the year compared with corporates, according to the first RAM Business Confidence Index survey.
The findings suggest that SMEs in general are exercising some degree of caution and risk aversion, said RAM Ratings economist Kristina Fong at a media briefing here yesterday.
SMEs and corporates recorded readings of 53.2 points and 56.9 points, respectively. Anything above the 50-point benchmark signals a sense of optimism.
A total of 2,073 SMEs and 801 corporates across five major industries – construction, manufacturing, retail/wholesale, business services/agriculture, mining, and transport and storage were surveyed. The index measures the firms’ six-month forward looking expectations on key aspects including turnover, profitability, hiring, capital investment, capacity utilisation and access to bank financing.
Annual turnover for corporates is RM50 million and above, while for SMEs, it is below that. The majority of firms surveyed are profitable despite the current challenging economic conditions.
The survey shows that SMEs in the retail sector were less bullish at 51.9 points on the back of a decline in discretionary spending. However, RAM foresees discretionary spending will increase going forward in anticipation of improvement in the labour market and normalisation of demand after the Goods and Services Tax implementation.
SMEs are also less sanguine about business expansion and capital investment and are opting for greater utilisation of the existing capacity.
On the corporate side, worth noting is that readings for the manufacturing sector, a key to the economy, stood at 56.5 points; suggesting that firms are anticipating a recovery in external demand coupled with continuing support provided by domestic demand.
Nonetheless, the wholesale sector was less optimistic due to a slowdown in retail domestic demand arising from increasing living costs and soft labour conditions.
Fong highlighted that the survey does provide vital indicators on the economy, such as the ease of retrenchment activity, given that the hiring segment recorded 53.9 points and 62.6 points each for SMEs and corporates.
“Unemployment is a lagging indicator and through this survey, we saw positive sentiment towards hiring, it can become a forward leading indicator to support the macro data,” Fong said. She expects the employment rate to be lower at 3.2% in 2017 against 3.5% in 2016.