KUALA LUMPUR: Rising costs have made businesses less confident that they will turn in a profit, according to a RAM-CTOS Business Confidence Index (BCI) survey.
The BCI, which measures business confidence, declined to 51.4 in the third quarter of 2022 (3Q22) from a record high of 65.0 in the preceding quarter.
RAM Holdings Bhd said more than 80% of the 152 companies polled in the survey cited increasing costs as the top challenge that had dimmed their business sentiments.
“Nonetheless, the surveyed firms have remained optimistic about the outlook for sales amid the strong demand recovery,” RAM said in a statement today.
“While rising costs have been cited as a top hurdle in our surveys for three consecutive quarters, it had not dented sentiments until now,” it said. “These costs, initially thought to be transitory, are unlikely to abate anytime soon, putting businesses under higher pressure.”
For the same reason, RAM said, the proportion of companies citing labour constraints as a significant challenge stayed high at 53% amid persistent manpower shortage.
It said these challenges were affecting firms’ operations and profitability, even as the volume of incoming orders remained healthy as indicated by the positive sub-index reading of nearly 56 for revenue outlook.
“Contrast this to the profitability sub-index of just 46, denoting poor prospects for future profits. The margin pressure is particularly pronounced among smaller firms surveyed that voiced broadly weaker sentiments,” it added.
To sustain their business, RAM said, close to 60% of surveyed firms had raised prices while around 35% kept prices unchanged.
Notably, around 80% of micro-enterprises had not raised prices, a prominently larger share relative to the overall survey sample, with the main reason cited being the fear of losing customers, while some opted to accept lower profit margins.
Looking ahead to the next six months, some firms might need to increase prices further if they were to remain viable, it said.
Given the robust economic recovery, RAM said businesses, in general, were still optimistic about sales growth as the economy reopened.
“However, persistent spiralling costs and the challenges in hiring workers were taking a toll on firms’ bottom lines and for the micro, small and medium enterprises (MSMEs), their viability in the medium to long term.
“As such, policymakers are urged to continue providing support, reduce red tape as well as facilitating and offering guidance on accessing various market initiatives to vulnerable micro-enterprises and SMEs,” it said.
Source: https://www.freemalaysiatoday.com/category/business/2022/09/28/businesses-now-less-optimistic-about-profit-prospects/