The Malaysian Institute of Economic Research said its Business Conditions Index, which has been on a general downtrend since the fourth quarter of 2021, dropped further to 79.7 points in 3Q23.
PETALING JAYA: Malaysian business confidence slumped to the lowest level since the Covid-19 pandemic, as the impact of falling export orders outweighed the slight rebound in domestic orders.
Consumers have also turned more pessimistic, with more people tightening their belts amid deterioration in personal finances and a less hopeful view on future job opportunities.
The worrying pattern among businesses and households was highlighted by the Malaysian Institute of Economic Research (MIER) yesterday, following the release of the think-tank’s Business Conditions Index (BCI) and Consumer Sentiment Index (CSI).
The BCI, which has been on a general downtrend since the fourth quarter of 2021 (4Q21), dropped further to 79.7 points in 3Q23.
This is the lowest level since the second quarter of 2020, when businesses were shut down amid the nationwide movement control order. On a yearly basis, the BCI dropped 20.1 points from 99.8 points in 3Q22.
The Malaysian business landscape faces worrying inventory levels as less than a quarter of respondents revealed that their stocks have decreased. While capacity utilisation has marginally improved, capital investments were unchanged.
In addition, domestic selling prices were mostly unchanged, even though wage costs were rising gradually.
Not only has the BCI registered a decline, but expectations were also weak. The BCI Expected Index for 3Q23 fell to 89 points, as compared to 94.3 points in the preceding quarter.
“The decline in the BCI and the expected index come in the force of a rebound in sales and domestic orders.
“Respondents are likely weighed down by global uncertainties and a decline in external orders,” said MIER.
About 50% of firms reported a decline in export orders, up from 43% in the previous quarter. Among the affected sectors were chemicals and pharmaceuticals as well as furniture.
Only 13% of respondents told MIER their export orders have improved.
Providing some reprieve, domestic orders rebounded in 3Q23, despite the sub-index rising by only 3.9 points quarter-on-quarter (q-o-q) to 36.2 points.
Year-on-year (y-o-y), however, it dropped 13.8 points from 50 points.
“Although domestic orders have gone up, the bulk of respondents (86%) experienced either unchanged orders or a decline.
“Only 14% noted an increase, particularly in the textile sector. Meanwhile, the number of firms which reported declining sales dropped to 41% from 52% in 2Q23,” said MIER.
The think-tank also reported that the sales outlook of companies improved slightly in 3Q23, rising 3.4 points to 43.9 points.
On a yearly basis, however, it dropped 21.7 points from 3Q22.
“Companies surveyed seem to be less pessimistic about their sales outlook. About 18% of respondents reported good sales for the quarter, 52% reported satisfactory sales and 30% said sales were poor,” it added.
MIER further noted that more respondents or 56% reported declining industrial production volume in 3Q23.
These firms were particularly from the food processing, chemicals and pharmaceuticals, medical equipment, furniture as well as machinery and equipment sectors.
Similar to businesses, consumer sentiment continued its downtrend in 3Q23.
The CSI fell 11.9 points q-o-q to 78.9 points. On a y-o-y basis, the CSI dropped by a substantial 19.5 points.
The negative trend is similarly observed in the employment index. It declined 3.6 points q-o-q to 98.8 points from 2Q23 and 14 points y-o-y from 3Q22.
“The pessimistic outlook is similarly reflected in respondents’ expectations on future job opportunities, income growth and inflation worries.
“Following the decline in the CSI and the employment index, MIER’s survey also found that respondents’ personal finances had worsened in 3Q23.
“A total of 45% of respondents answered that their current finances had deteriorated, rising 8% from 2Q23 and 12% y-o-y,” according to MIER.
Adding on to the concerns, respondents also exhibited less optimism on their future financial situation.
Four out of 10 respondents expect their future finances to worsen, increasing 14% q-o-q from 2Q23, and 13% y-o-y from the same quarter a year ago.
“This pessimistic outlook goes hand in hand with the projected increase in inflation next year.
“The Finance Ministry estimated that the consumer price index will rise between 2.1% and 3.6% in 2024.
“At the same time, wage growth appears to remain stagnant.
“The Economic Outlook 2024 found that the bottom 50% of workers only experienced a RM56 per year increase in the last decade,” MIER elaborated.
