DARKENING business sentiment in Malaysia, warns ACCA

KUALA LUMPUR - Malaysian businesses and finance professionals are losing confidence in the economy, the Q1 2014 Global Economic Conditions Survey (GECS) revealed.

Findings from GECS, the largest regular economic survey of accountants in the world, which was conducted by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants' (IMA), showed that 63% of Malaysian respondents were pessimistic about the state of the economy.

While nearly half reported a loss of confidence in the prospects of their own organisations, only 12% (down from 21% in late 2013) reported confidence gains.

ACCA senior economic analyst Emmanouil Schizas warned that the underlying trends all point to more trouble ahead, adding that cash flow and demand conditions weakened again in early 2014 and were virtually unchanged year-on-year.

"Business opportunities also fell, and only opportunities for inorganic growth remained resilient. As a result, despite improved access to growth capital for a second consecutive quarter, business capacity building fell," he said.

Most importantly, Schizas said, price and foreign exchange rate volatility intensified for a fifth consecutive quarter.

The survey noted that a record 81.5% of respondents cited rising input costs over the past three months while 46% cited an adverse impact from shifting exchange rates.

Schizas said despite increasingly unfavourable business conditions on the ground, respondents' satisfaction with government policy, which had been slipping since the May 2013 elections, now appears to have stabilised.

"However, respondents in Malaysia had been calling for tighter fiscal policy long before the 2013 elections, and are now more likely to expect the government to overspend in the medium-term than at any point in the past three years," said Schizas.

Fieldwork for the Q1 2014 GECS took place between February 27 and March 22 2014, which included the escalation of the events in Crimea as well as the early days of the search for flight MH370.

The survey attracted 1,772 responses from ACCA and IMA members around the world; 700 of those were senior finance professionals, including 171 CFOs.

In contrast, the survey revealed that globally, business confidence was up but the economic recovery could be seriously flawed.

Schizas said, "Despite the best business confidence readings since the GECS began in 2009, ACCA and IMA's analysis of the influence of fundamentals on business confidence suggests that the economic recovery is flawed and has now become much more fragile."

He said since early 2013, global business confidence has become increasingly dependent on price and exchange rate stability, a sign of building financial turbulence, which accelerated dramatically in early 2014.

Financial stability, the study showed, is now a more significant contributor to business confidence than cash-flow and demand.

"Expectations of government spending and ratings of government policy, also became more significant contributors in early 2014, suggesting that the recovery has been hollowed-out in early 2014 and is now over-dependent on policy," he said.

-Sundaily