The RAM Business Confidence Index (BCI) showed further deterioration in 2Q 2026, suggesting that the spillover effects of the military conflict in the Middle East are increasingly weighing on Malaysian businesses. The overall index declined to 33.4 from 42.2 in the preceding quarter, marking the second consecutive quarter of pessimistic sentiment regarding business prospects over the next three months. The erosion in sentiment was broad-based, with all sub-indices recording Q-o-Q declines, led by sharper weakness in the sales, profitability and capital investment sub-indicators.
Cost pressures become more entrenched
The survey, conducted between 10 June and 25 June 2026, found that cost pressures had re-emerged as the top concern, with nearly 68% of firms surveyed citing it as a key challenge (1Q 2026: 57%). Concerns over weak economic conditions remained elevated at 66%, although this was slightly lower than the 71% recorded in 1Q 2026. Persistent cost pressures were accompanied by growing concerns over supply chain disruptions, with the share of firms highlighting this issue more than doubling to 18% in 2Q 2026 from 8% in 1Q 2026. This suggests that businesses continue to grapple with uncertainty surrounding the availability and cost of inputs amid an increasingly volatile global operating environment.
Middle East tensions drive up business costs
This quarter’s special focus examines the impact of recent Middle East tensions on business operations. Around 82% of surveyed firms reported experiencing higher costs as a result of the conflict, with nearly half indicating cost increases of 10% or more. Logistics and shipping emerged as the most affected cost category, cited by 69% of respondents, followed by raw materials and fuel and energy costs, respectively at 64% and 50% of firms surveyed.
Firms split between absorbing and passing on higher costs
Despite rising costs, businesses remain divided in their response strategies. Slightly more than half of respondents (51%) reported passing on some of the additional costs to customers through higher prices, while 49% chose to absorb the increases to maintain competitiveness. Price adjustments were only one of several measures adopted. Around 45% reported operational changes, including changing suppliers, streamlining inventories or modifying business processes, while about 25% opted to delay workforce expansion.
When asked why they had yet to raise prices, customer retention emerged as the main deterrent. One-third of respondents cited concerns about losing customers as the primary reason for delaying price adjustments, highlighting weak demand and competitive market pressures.
“The survey highlights how events in the Middle East have translated into higher business costs through supply chain, logistics and energy channels,” said Chris W.K. Lee, RAM Holdings Berhad Group CEO and Executive Director.
“The continued disruption at the Strait of Hormuz may continue to pressure costs going forward. Any alleviation in business pressures in the short term is unlikely to be immediate and complete. Continued assistance will still be needed to help firms adapt and weather the lingering turbulence,” he added.
