The rating agency's survey showed the companies the corporate and SME indices again charted positive sentiment at a respective 56.8 and 52.1, with continued improvement in their turnover and profitability sub-indices.
“The sustained positive readings indicate Malaysia’s economic resilience in the first half of 2018 is likely to carry through to the second half of the year, supported in particular by the corporate segment’s firm optimism,” it said.
RAM said the results of its survey also showed the outcome of the 14th General Election (GE14) may have partly contributed to the more upbeat sentiment among firms.
Notably, both the corporate and SME segments displayed higher overall indices after the 14th General Election on May 9 compared to prior to the GE14. The 3Q-4Q 2018 survey was conducted in April and May.
RAM had separated respondents to pre-GE14 and post-GE14 buckets, based on when they were surveyed; about 35.4% of the 1,000 corporates and 33.4% of the 2,500 SMEs were surveyed after GE14.
“We observe that the Corporate and SME indices were higher by a respective 0.7 and 2.0 points in the post-GE14 sample relative to the pre-GE14 sample,” it said.
The survey showed the better business sentiment post-GE14 was across all sectors for both corporates and SMEs, except for the corporate construction sector, which shaved off 1.0 point.
The uncertainties over various property and infrastructure projects following the election victory of Pakatan Harapan may have slightly dampened the prospects of incoming contracts for corporate construction firms, as depicted by its lower turnover sub-index for the post-GE14 sample.
That said, corporate construction firms remained firmly optimistic post-GE14, with an overall index value of 55.0, indicating still bullish prospects for the rest of the year.
The proportion of firms citing “rising cost of doing business” as their main challenge was also much lower after GE14, likely on expectations that the zero-rating of Goods and Services Tax (GST) and the three-month tax holiday until the Sales and Service Tax (SST) is reintroduced in September will allow businesses to achieve some cost savings.
Among the firms surveyed after GE14, only 22.3% of corporates and 17.1% of SMEs cited “rising cost of doing business” as their primary challenge, as opposed to a respective 32.2% and 22.1% before GE14.
However, the was some negative sentiment concerning the SMEs’ ability to access bank financing.
The RAM BCI sub-index covering this aspect has been hovering within the “negative sentiment” territory for the last four surveys; it stands at 48.1 (-0.4 points) for Q3 and Q4 of 2018.
“This suggests some concerns over their funding conditions. This appears to also be an issue pertinent to only SMEs, as their larger corporate counterparts have consistently recorded positive readings for this sub-index in the last six surveys, suggesting generally less difficulty in obtaining bank financing,” it said.
In the latest survey, 28% of SMEs expected more difficulty in accessing bank financing.
This is roughly double the proportion of corporates (14.3%) with the same response.
“This issue is especially prominent for the SME construction sector, where 33.4% of firms expected increased difficulty in this area.
“In view of our findings, it is important to ensure SMEs’ better access to funding, to support the country’s economic growth. Furthermore, SMEs’ turnover and profitability expectations have risen in the last three surveys - a sign pointing to potentially a greater need for financing,” it said.
Howevever, the survey showed that short-term economic uncertainties remain.
On the domestic front, a slew of potential new measures, such as the change in tax regime, the review of major government-linked projects and the proposed increase in minimum wages, by the new administration may impact domestic businesses.
On the global front, the impact of the US Federal Reserve’s rate hikes and the repercussions of the ongoing US-China trade war also present challenges.
“While businesses have shown more positive confidence following the results of GE14, these prevailing uncertainties may dampen the prospect of business optimism translating fully into eventual tangible results,” said RAM.
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