PETALING JAYA: Rising cost pressures that have stayed elevated in the last few months are weighing on the optimism of businesses and their profit outlook in the near term, according to RAM Holdings Bhd.
RAM-CTOS Business Confidence Index (BCI) for the third quarter of 2022 receded to 51.4 from a record high of 65.0 in the preceding quarter.
“Over 80% of the 152 firms polled in this survey cited increasing costs as the top challenge dimming their sentiments. Nonetheless, surveyed firms remained optimistic about the outlook for sales amid strong demand recovery,” it said in a statement.
While rising costs are initially thought to be transitory, it is unlikely to abate anytime soon, putting businesses under pressure.
In addition, the share of firms citing labour constraints as a challenge stayed at 53% amid persistent manpower shortage.
These challenges are affecting firms’ operations and profitability even as the volume of incoming orders remains healthy as indicated by the sub-index reading of nearly 56 for revenue outlook.
Contrast this to the profitability sub-index of just 46, denoting poor prospects for future profits. The margin pressure is particularly pronounced among smaller firms that voiced weaker sentiments.
To sustain business, close to 60% of firms have raised prices while around 35% kept prices unchanged. Notably, 80% of micro-enterprises had not raised prices due to the fear of losing customers, while some opt to accept lower profit margins.
“Looking ahead to the next six months, firms may need to increase prices further if they are to remain viable,” it said.
RAM urged policymakers to continue providing support, reducing red-tape as well as facilitating and offering guidance to vulnerable micro-enterprises and SME to allow these firms to capitalise on strong incoming orders and ensure that the nation’s economic recovery remains sustainable.
