KUALA LUMPUR (Feb 24): Malaysian manufacturers remain cautious about the business outlook in the first half of 2016 (1H16) after seeing slower business activities in the second half of 2015 (2H15), FMM-MIER Business Conditions Surveys showed.

The FMM-MIER Business Conditions Index (BCI) for 2H15 has declined 11 points to 83 as compared to 94 points in 1H14, the lowest since the survey started in 2012. The BCI for 1H15 stood at 86.

This was mainly due to weaker local and export sales amid global economic volatility, as well as lower production volume and capacity utilisation.

The local sales index declined to 72 points, down 5 points and 16 points from 1H15 and 2H14 respectively, while the export sales index was narrowed to 95, decrease 7 points and 3 points from 1H15 and 2H14 respectively.

The production volume and capacity utilisation indexes also fell for the third consecutive survey to 88 and 90 respectively, which is the lowest level in four years.

Similarly, the six-month business outlook in 1H16 has decline marginally by 1 point to 94 compared to 95 in 2H15 and 107 in 1H15.

The Federation of Malaysian Manufacturers (FMM) president Datuk Seri Saw Choo Boon said that while the manufacturers did not expect the next six months to be any better, they don't expect situation to deteriorate severely either.

Despite the challenges from local and global market, Saw said, "The manufacturers are able to cope with the challenges by reducing the cost of operation, which mean they are more efficient."

"For the outlook, they expected the production level to remain the same without a big reduction in manpower," Saw told a press conference at the Wisma FMM here today.

The expected local sales index fell to an all-time low of 84; while the export sales index to a three-year low of 106, indicating slowdown in demand.

In 2H15, manufacturers also managed to reduce their cost of production by 10% (1H15: 6%). However, they expected the cost of production to be flat in 1H16.

For 1H16, they also expected the production volume to be steady at 2H15 level of 104, the lowest since 2H12.

The FMM-MIER Business Conditions Survey was carried out from Dec 16, 2015 to Jan 22, 2016 with a total of 275 respondents worldwide.

Saw said that the manufacturers continue to see the ringgit depreciation as their biggest challenge, as it increased the costs of import of raw materials and lowered sales revenue.

He urged the government can help to maintain the value of ringgit.

"We know there are many factors contributing to the depreciation of ringgit, and the government cannot control all the factors. But some of the factors, the government do have control of it," Saw added.

Meanwhile, 98% of the respondents said that the manufacturing issues have yet to be addressed, and cost of doing business are continually increasing.

They also opined that there is a lack of emphasis and no major incentives to drive manufacturing into high value-added industry and encourage existing investors to re-invest to expand and diversify businesses.

In addition, there is lack supply of skilled workers to support high value-added industry.