MIER sees rocky road ahead for businesses


File pic: Foreign workers busy assembling furniture at a factory in Muar, Johor.

KUALA LUMPUR: The Malaysian Institute of Economic Research (MIER) sees a rocky road ahead for businesses as manufacturers reported a decline in sales due to a fall in domestic and external demand.

In its business conditions survey report issued late Thursday, MIER said business confidence has deteriorated sharply in 2Q2021.

“The Business Conditions Index (BCI) declined 24.3 points to a reading of 87.5 points this quarter, reaching below the threshold level since 4Q2020 where business sentiments rebounded from the COVID-19 pandemic,” it said.

The report pointed out all of the components of BCI showed a lower reading as compared to the preceding quarter.

Manufacturers surveyed experienced a decline in sales, which was attributed to the decline in domestic and external demand.

Production, capital investment and capacity utilisation have fallen in conjunction with the lower demand from local and external sources.

“The unfavourable business sentiments are partly due to the spike in Covid-19 cases over the past couple of months, which induced the reimposition of national lockdown policy to curb the infection rate.

“Consequently, this negatively affected the production and sales performance for the manufacturing industry,” it said.

The Star Online reported that as at noon Thursday, Malaysia continued to record high Covid-19 infections. There were 17,170 new cases, raising the total number to 1,078,646 cases.

Selangor continued to record high levels at 7,163 new infections and Kuala Lumpur 2,138. The death toll continued to mount, rising by 174 deaths to 8,725.

Due to the surge in infections, the MIER report said the government had imposed the enhanced movement control order (EMCO) to curb the pandemic.

This move halted some areas of manufacturing activity since factories are not allowed to operate during the lockdown period. Consequently, this negatively affected the production and sales performance for the manufacturing industry.

All of the components of BCI showed a lower reading as compared to the preceding quarter. The manufacturers surveyed experienced a decline in sales, which was attributed to the decline in domestic and external demand. Production, capital investment and capacity utilisation have fallen in conjunction with the lower demand from local and external sources.

MIER said the fall in demand might be due to the change in consumer spending behaviour. In particular, the recent spike in Covid-19 cases has induced consumers to adopt a conservative spending approach, whereby consumers are more focused on immediate needs and minimise the purchase of nonessential items.

“Furthermore, they are more likely to set aside a greater portion of their income for saving purposes, which will be used to safeguard against future financial uncertainty and uncertain medical expenses,” it said.

MIER also said capital investment decreased in 2Q21, as shown by the new plant and equipment sub-index which, at 60.0, decreased by 7.5 points from the previous quarter.

In line with poor sales performance, the industries producing textiles and wearing apparel, leather and related products, wood products, plastic products, electronic components & boards, communication equipment and firms in the wood products and metal products sub-sectors experienced a decrease in their capital investment.

The report pointed out employment conditions in 2Q2021 fell substantially as compared to the previous quarter.

Seventeen per cent of the firms reported that the number of their workers had increased compared to 32% who reported similar sentiments in the previous quarter.

Notably, employers who reported cutback in employment totaled 20%, a substantial increase of 16% from the previous quarter

In its report, MIER said likewise, a sluggish outlook was expected in the next three months as the Expected Index (EI) decreased by 10.6 points and settled lower at 110.0 points.

“The drop in the EI was attributed to the weak reading of expected production and export sales. The former fall by 5.1 points as compared to the preceding quarter. The latter stood at 56.4 points, a decline of 5.5 points from 1Q2021.

“Taken together, the road ahead remains a rocky one for businesses as the lockdown policy persists and so long as the Covid-19 pandemic is not restrained,” it said.

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