Business conditions to remain challenging, lacklustre outlook for manufacturing: FMM-MIER survey

PETALING JAYA: Difficult conditions brought on by Covid-19 uncertainties are expected to persist into the second half of 2021 (H2’21), according to the Federation of Malaysian Manufacturers-Malaysian Institute of Economic Research (FMM-MIER), Business Conditions Survey for the first half of 2021 (H1’21).

It outlined that production costs are expected to climb, while all the other indicators have posted readings below the demarcation level of optimism, indicating a lacklustre outlook for the manufacturing sector in the coming months.

On the whole, the survey found that business activity for H2’21 is expected to remain as slow as in H1’21.

“The index for expected business activity fell to 60 from 87 points previously, with 55% of the respondents anticipating their business to be equally slow for the rest of the year. Only 15% are positive that their business will pick up soon.”

Meanwhile, it found the expected indexes for both local and export sales declined to 51 and 68 points, respectively, an implication that domestic and external demand will likely remain weak in the coming months as well.

This weak sales outlook is also expected to translate to dampened production and capacity utilisation as expected indexes for the indicators fell from 62 to 60 points.

However, the expected index for cost production shot up to 166 points with 73% of the respondents projected a higher production cost for the second half of 2021.

“Employment is expected to remain flat in the coming months, as indicated by the index for expected employment which, at 87, had sunk below the optimism threshold this time,” said the survey.

It implied manufacturing sector jobs will be scarcer in the coming months as a quarter of the respondents intend to reduce their workforce while 12% will increase their headcount and 63% opted to maintain their workforce.

In regard to the impact from the pandemic led restrictions and lockdown, 55% of those surveyed had their orders cancelled due to their inability to deliver, while 40% had their H2’21 order contracts reviewed and 38% had to incur storage and demurrage costs for their cargoes which were stuck at the port/airport.

“Penalties due to delays in order deliveries were imposed on 21% of the respondents and 16% had to pay shipping cancellation fees as their cargoes could not be moved to the port/airport for export.”

To cope with the challenging conditions, the respondents revealed that a corporate tax reduction tops their government assistance wishlist for the remainder of this year and the next. This is followed by electricity and natural gas discounts and extension of targeted wage subsidy to all workers in all sectors.

“Delay/reduction in regulatory cost, including new laws and regulations in the pipeline with cost impact ranked fourth on the list, while the fifth most popular suggestion was the lowering of statutory costs (licensing, quit rent, assessment etc).”