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Malaysian manufacturers expect weaker sales and higher cost ahead, says poll

FMM In The News: THE EDGE MARKETS, KUALA LUMPUR, Wednesday, September 1, 2021 - The challenging conditions faced by businesses currently are expected to continue into the second half of 2021 (2H2021) as the Covid-19 pandemic continues to cast uncertainties on the economy and prospects of businesses, according to the findings of the FMM-MIER Business Conditions Survey 1H2021 released today.

All the other current and forward-looking indicators in the latest survey registered lower than 2H2020, a sign that 1H2021 had posed to be a very challenging period for manufacturers and this is expected to continue for the rest of 2021 as well.

Adding to the challenges, the respondents are expecting the cost of production to climb higher.  

"Business activity for 2H2021 is expected to remain as slow as in 1H2021. 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% (of the respondents) are positive that their business will pick up soon," said Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai in the statement.

The poll also revealed that business activity plummeted in 1H2021 amid a tightening of the Covid-19 lockdowns which put further strains on the manufacturing sector.

The survey is a bi-annual collaboration between the FMM and the Malaysian Institute of Economic Research (MIER), which drew 687 respondents nationwide and was conducted from July 16 to Aug 16, 2021.

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

More than half of the respondents, 59%, are forecasting poor local sales in the second half of the year, with the same expectations from half of those who export.

It added that weak sales are dampening the outlook for production and capacity utilisation. Both the expected indexes for production and capacity utilisation fell against the level in the previous survey to 62 and 60, respectively, suggesting that a decrease in production and capacity utilisation can be expected in 2H2021.

"The expected index for cost of production has risen again. At 166, it infers that production will be costlier soon, with 72% of the respondents projecting this for 2H2021. 

“A slowdown in capital expenditure (capex) is in the pipeline for now, as shown by the expected index for capex which dipped to 81 in the latest survey. While 37% of the respondents are contemplating cutting back on their capex soon, 18% are considering increasing theirs," Soh noted. 

The survey findings also showed that 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. 

This implies that jobs in the manufacturing sector will be harder to come by in the coming months. A quarter of the respondents intend to reduce their workforce, while 12% are planning to increase their headcount and the remaining 63% will maintain their workforce.

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