Business sentiment among Malaysian firms dives to a new low in Q2 2020 amid COVID-19

Business sentiment among Malaysian companies dived to a new low in Q2 2020. According to Dun & Bradstreet (D&B) Malaysia’s Business Optimism Index (BOI) study, BOI plunged into the contractionary zone from +10.22 percentage points in Q1 2020 to -21.52 percentage points in Q2 2020. On a year-on-year basis, BOI fell from +5.61 percentage points in Q2 2019 to -21.52 percentage points in Q2 2020.

The six business indicators under the quarterly BOI study include volume of sales, net profits, selling price, inventory level, employees and new orders. All six indicators have fallen on a quarter-on-quarter basis for Q2 2020.

❖ Net profit dropped from +11.11 percentage points in Q1 2020 to -40.20 percentage points in Q2 2020.
❖ Volume of sales dived from +8.70 percentage points in Q1 2020 to -27.84 percentage points in Q2 2020.
❖ Selling price fell from +10.14 percentage points in Q1 2020 to -10.31 percentage points in Q2 2020.
❖ New orders fell from +24.16 percentage points in Q1 2020 to -26.80 percentage points in Q2 2020.
❖ Inventory levels remained in the contractionary zone falling from -1.93 percentage points in Q1 2020 to -20.62 percentage points in Q2 2020.
❖ Employment levels decreased from +9.17 percentage points in Q1 2020 to -5.21 percentage points in Q2 2020.

On a year-on-year basis, all six indicators have declined for Q2 2020.
❖ Volume of sales fell from +6.83 percentage points in Q2 2019 to -27.84 percentage points in Q2 2020.
❖ Net profits dropped from +1.95 percentage points in Q1 2019 to -40.20 percentage points in Q2 2020.
❖ Selling price fell from +6.83 percentage points in Q1 2020 to -10.31 percentage points in Q2 2020.
❖ New orders plunged from +10.24 percentage points in Q1 2020 to -26.80 percentage points in Q2 2020.
❖ Inventory levels fell from +4.39 percentage points in Q2 2019 to -20.62 percentage points in Q2 2020.
❖ Employment levels dropped from +3.41 percentage points in Q2 2019 to -5.21 percentage points in Q2 2020.

Sectoral Outlook
For Q2 2020, majority of the sectors are pessimistic about the outlook. The services and transportation sectors are least optimistic.

The services sector has emerged as one of the most pessimistic sectors with all 6 indicators in the negative zone. Volume of sales dived from +16.48 percentage points in Q1 2020 to -34.14 percentage points in Q2 2020. New orders fell from +37.36 percentage points in Q1 2020 to -24.39 percentage points in Q2 2020. Employment levels fell into the contractionary zone from +7.69 percentage points in Q1 2020 to -4.88 percentage points in Q2 2020.

The transportation sector is also downbeat with all 6 indicators in the contractionary zone for Q2 2020. Both volume of sales and net profits plunged from +50.0 percentage points in Q1 2020 to -83.33 percentage points in Q2 2020. New orders fell from +16.67 percentage points in Q1 2020 to -16.67 percentage points in Q2 2020. Employment levels fell from +7.69 percentage points in Q1 2020 to -4.88 percentage points in Q2 2020.

The outlook for the manufacturing sector is expected to dampen significantly with 5 indicators in the negative region. Volume of sales plunged from +5.13 percentage points in Q1 2020 to -15.79 percentage points in Q2 2020. Net profit declined from +15.38 percentage points in Q1 2020 to -42.11 percentage points in Q2 2020. Selling price has inched upwards from -2.56 percentage points in Q1 2020 to 0 percentage point in Q2 2020. New orders dropped from +23.07 percentage points in Q1 2020 to -5.26 percentage points in Q2 2020. Employment levels dived from +12.82 percentage points in Q1 2020 to -10.53 percentage points in Q2 2020.

Sentiments within the wholesale trade sector is also downbeat with 5 indicators in the negative region. Volume of sales remained contractionary, down from -4.35 percentage points in Q1 2020 to -14.29 percentage points in Q2 2020. Net profit dived from -13.04 percentage points in Q1 2020 to -35.72 percentage points in Q2 2020. New orders dropped from +13.04 percentage points in Q1 2020 to -21.43 percentage points in Q2 2020. Employment levels fell from +4.35 percentage points in Q1 2020 to 0 percentage point in Q2 2020.

“Sentiments among Malaysian firms have plunged to a new low due largely to the recent surge in COVID-19 cases. We expect the dampened outlook to persist into the second and third quarter of 2020 given that a potential near-term recovery of the hardest hit sectors such as services and transportation is quite unlikely. However, we might be able to see some green shoots once the active cases begin to peak globally. In view of these adverse developments, we have trimmed our 2020 growth forecast to 4.0 per cent.” Ms. Audrey Chia Chief Executive Officer Dun & Bradstreet (Malaysia) Sdn. Bhd.

The D&B Business Optimism Index is a measure of business confidence in the economy. Released quarterly, it is based on a business sentiment survey that is designed to capture business expectations and is one of the most effective ways to track how the business community perceives the business environment, and where they think it is moving. This is commonly used, worldwide, to assist in analyzing major trends and issues concerning the business community through tracking business parameters including net profits, selling prices, new orders, inventory levels, and employee count.

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