KUALA LUMPUR (June 29): Businesses are firmly optimistic about their outlook in the next three months, according to the 2Q 2022 RAM-CTOS Business Confidence Index (RAM-CTOS BCI) survey, but eight out of 10 of the survey respondents are reporting rising cost pressures that could cap business recovery.

A total of 116 respondents were polled in the survey that was conducted from May 9 to May 27, which showed the overall RAM-CTOS BCI clocking in at 65 points, up from 55.4% in the preceding quarter, and well above the neutral threshold of 50, which indicates positive sentiment; anything below 50 indicates negative sentiment. (See Figure 1)

In particular, the rising cost of doing business remains a top hurdle this quarter, with 83% of those polled citing so, up from 72% in 1Q 2022.

"The share of firms citing labour issues also climbed sharply to 54% in 2Q 2022 from 43% previously. These challenges are particularly pronounced among manufacturing firms amid current spiralling input prices, supply chain disruptions and the prolonged foreign labour squeeze in Malaysia," RAM Holdings Bhd noted in a statement announcing the survey's findings.

It also noted that about 60% of respondents — the majority comprising small and medium enterprises (SMEs) and micro firms — cited a need for more financing in the next six months to fund growth, as they reported more hurdles in their efforts to secure additional external financing.

More than 40% of SMEs and micro firms have had their financing applications rejected in the last six months, compared to just 10% for corporate respondents, RAM further noted.

"Lack of collateral was cited as among the key impediments to obtaining financing. Consequently, smaller firms in our survey tend to be more reliant on personal funds to grow their business. It is, however, noteworthy that over 90% and 60% respectively of corporate and SME respondents have successfully raised funds from banks and other sources in the last six months," RAM said.

Overall, RAM said the firm optimism observed this quarter points toward a strong recovery for businesses this year, though most firms are facing labour shortages and escalating input costs arising from high commodity prices and supply chain disruptions.

"The imposition of a higher minimum wage and rising interest rates further compound the challenges faced, particularly by smaller firms with fewer resources.

"Against these headwinds, policymakers and financial institutions are urged to continue to support SMEs and micro firms by facilitating access to financing and other market initiatives. This will ensure that the nation’s economic recovery remains on track this year," RAM added.

The RAM-CTOS BCI survey, conducted by RAM and CTOS starting 1Q 2022, is a comprehensive survey released on a quarterly basis that focused on forward-looking business sentiment and topical issues faced by the small and medium business community in Malaysia.