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Production costs expected to rise as manufacturers’ activity outlook remain cautious — FMM-MIER survey

FMM In The News: THE EDGE MARKETS, KUALA LUMPUR, Tuesday, March 2, 2021 - Production costs are expected to trend upwards in the coming months as manufacturing activity remains subdued while manufacturers remain cautious over their business outlook for the next six months.

According to the FMM-MIER Business Conditions Survey 2H2020 released today, most indicators registered readings below the 100-point threshold level of optimism, an indication that overall business conditions in 2H2020 had remained subdued.

The survey is a bi-annual collaboration between the Federation of Malaysian Manufacturers (FMM) and the Malaysian Institute of Economic Research (MIER). It involved 652 respondents nationwide who participated from Dec 23, 2020 to Jan 31, 2021.

The resurgence of Covid-19 cases in the last quarter of 2020 has continued to pose challenges for both the government and businesses, and with constraints on mobility and demand going forward, respondents are cautious on their business projections for 1H2021, noted FMM president Tan Sri Soh Thian Lai.

According to the survey, the expected index for business activity rose to 87 — below the optimism threshold of 100 — implying that respondents are cautiously hopeful of a pick-up in their businesses soon. It said 23% replied positively, while 41% do not foresee any change in the coming months.

The prognosis for local and export sales for 1H2021 is equally subdued, the survey showed. Registering below the optimism threshold, both the expected indexes for local sales and export sales stood at 74 and 88 respectively, reflecting, once again, cautiousness on the part of the respondents, it said.

However, favourable replies from 14% of those who sell locally and 24% of those who export indicate that export sales are expected to perform better than local sales in 1H2021.

“The indexes for expected production volume and capacity utilisation are also below the optimism threshold. At 91 and 92, respectively, these are additional signs that respondents are cautiously projecting a pick-up in these aspects in 1H2021,” said Soh.

Of this, 26% of the respondents said they are planning to increase their production volume soon, while 25% are considering increasing their capacities soon.

The expected cost of production index rose from 133 recorded in the prior survey to 155 currently, an inference that production is likely to cost more in the coming months, said Soh. This is projected by 62% of the respondents, up from 45% previously, while only 7% are anticipating otherwise.

Meanwhile, capital expenditure (capex) and employment are also expected to shift higher in 1H2021, as shown by the expected indexes which increased from 61 and 82 recorded in the preceding survey to 98 and 102 in the current survey, respectively. The survey showed that 24% of the respondents are planning to increase their capex soon and 19% have new recruitment plans for 1H2021.

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