According to RAM-CTOS 2Q 2022 Business Confidence Index survey, results showed businesses are firmly optimistic about their three-month outlook. The overall index clocked in at 65.0, up from 55.4 recorded in the preceding quarter, and is said to be well above the threshold of 50 which indicates positive sentiment.
The survey also indicated for all other sub-indices tracked showed positive momentum, the Rating agency added while it is not all smooth sailing, over 80% of the 116 respondents polled are reporting rising cost pressures that could cap business recovery.
Rising cost of business is the top challenge
Additional indicators from the survey showed the rising cost of doing business remains the top hurdle for the quarter, cited by 83% of firms, up from 72% in 1Q 2022. The share of firms citing labour issues also climbed sharply to 54% in 2Q 2022 from 43% previously. These challenges are particularly pronounced among manufacturing firms amid current spiralling input prices, supply chain disruptions and the prolonged foreign labour squeeze in Malaysia.
Most firms need financing, but access is uneven
About 60% of respondents – the majority comprising SMEs and micro firms – cited a need for more financing in the next six months to fund growth. These same firms reported more hurdles to secure additional external financing. More than 40% of SMEs and micro firms have had their financing applications rejected in the last six months, compared to just 10% for corporate respondents. Lack of collateral was cited as among the key impediment to obtaining financing. Consequently, smaller firms in our survey tend to be more reliant on personal funds to grow their business. It is, however, noteworthy that over 90% and 60% respectively of corporate and SME respondents have successfully raised funds from banks and other sources in the last six months.
Bright prospects, headwinds may threaten pace of recovery
The firm optimism observed this quarter points toward a strong recovery for businesses this year. However, most firms are facing labour shortages and escalating input costs arising from high commodity prices and supply chain disruptions. The imposition of a higher minimum wage and rising interest rates further compound the challenges faced, particularly by smaller firms with fewer resources. Against these headwinds, policymakers and financial institutions are urged to continue to support SMEs and micro firms by facilitating access to financing and other market initiatives. This will ensure that the nation’s economic recovery remains on track this year.
