Outlook NO LONGER so rosy, says FMM

KUALA LUMPUR - The Federation of Malaysian Manufacturers (FMM) has taken a cautious outlook for the first half of 2016 (1H16) due to slower business activity for Malaysian manufacturers in 2H15 as indicated by the FMM-MIER Business Conditions Survey.

As uncertainty continues to affect the local and global economies, the general business conditions index was down three points to 83 in 2H15, the lowest since the survey started in 2012. Four in 10 respondents saw a decline in business activity.

Index values range from 0 to 200 points. A value above the growth-neutral threshold level of 100 points indicates an improvement or positive outlook, while that below the threshold indicates a worsening or negative outlook.

2H15 saw weaker local and export sales, lower production volume and capacity utilisation, moderating cost of production and capital investment.

Employment also eased in 2H15 where the index fell for the first time below the 100-point threshold to 91. Nevertheless, the majority (63%) maintained their head count in 2H15.

Positively, 10% of manufacturers reduced their costs in 2H15, while 64% would increase or initiate new efforts to export to Asean countries and regionally or globally.

The survey of business conditions in manufacturing is conducted in collaboration with MIER and was carried out from Dec 16, 2015 to Jan 22, 2016 involving 275 respondents nationwide.

FMM president Datuk Seri Saw Choo Boon said findings of concern include a slowdown in local and export sales in 1H16; price competitiveness in local and export markets due to continually rising costs of doing business, as well as lack of emphasis and major incentives to drive manufacturing into high value-add.

Other findings of concern revealed that efforts are inadequate to encourage existing investors to reinvest to expand and diversify; skilled manpower unavailable to support high value-added industrialisation and human capital lagging behind neighbouring emerging economies.

On the outlook for 1H16, the business conditions index slowed marginally to 94, one point less from 2H15. About 40% were neutral in outlook, 33% were negative and 27% positive.

The local sales index fell to an all-time low of 84 in 1H16’s outlook, while the export sales index fell to a three-year low of 106.

On a positive note, production cost is expected to be flat in 1H16, while production is also likely to be steady in 1H16 at 2H15 level. Employment could also rise in 1H16, the survey found.

A significant challenge in the external market in 2016 is the global economic slowdown, especially China.

Domestic challenges are ringgit depreciation, competition from imports especially from China, new suppliers and prices, weaker local demand due to lower disposable incomes and rising inflation, higher costs of doing business, uncertainties in prices of utilities, transport and wages and foreign workers restrictions.

Saw said the greatest challenge for manufacturers in 2016 is the volatility of the ringgit, as the depreciation of the currency has increased the cost of imports. - Sundaily