KUALA LUMPUR, Feb 5 ― Finance professionals in Malaysia were surprisingly less pessimistic at the end of 2015, possibly because the country’s economy slowed less than they originally expected, according to the largest regular global survey of accountants.
Responding to the Global Economic Conditions Survey for the fourth quarter of 2015 run by ACCA (the Association of Chartered Certified Accountants) and IMA (the Institute of Management Accountants), finance professionals said that while growth in Malaysia has slowed, it was nowhere near as dramatic a fall as had been experienced by commodity-based economies in other regions.
While this can be seen as a positive, business confidence in Malaysia is not out of the doldrums yet, with 65 per cent of the firms surveyed still saying that they had become less confident over the preceding three months.
Chart 1: Malaysia Index from Q4, 2011 to Q4, 2015
(Source: GECS Report Q4 2015, page 27)
[http://mrem.bernama.com/pdf/Chart%201%2826175%29.pdf]
There could also be further problems on the horizon. Malaysia’s foreign currency-denominated external debt is unusually high, at 45 per cent of GDP in September 2014 according to the IMF, with the majority held by businesses. The 25 per cent fall in the Malaysian ringgit against the US dollar since mid-2014 will have pushed up the cost of servicing this debt.
This could help explain why 66 per cent of firms in Malaysia reported concerns about rising costs, well above the 37 per cent global average, despite low consumer price inflation.
Chart 2: Malaysian businesses with concerns about rising costs (%)
(Source: GECS Report Q4 2015, page 27)
[http://mrem.bernama.com/pdf/Chart%202%2826175%29.pdf]
Falling income is the biggest concern for global businesses, according to the GECS. Nearly half of businesses (46 per cent) around the world reported a decline in earnings in the fourth quarter of 2015.
The survey of more than 2,500 finance professionals and over 200 CFOs around the world also shows that business confidence has hit rock bottom where 44 per cent of respondents were less confident than three months earlier.
Businesses not only reported a fall in income, but also more difficulty in accessing finance, with half of business cutting their workforce or putting a recruitment freeze in place and 40% saying they had cut back investment plans since the third quarter of 2015.
Confidence remained especially weak in emerging economies. China’s slowdown is affecting business confidence around the rest of the world and is contributing to serious problems in other major emerging economies, especially those that rely on commodity exports, such as Brazil and Russia.
As the price of oil continues to tumble the producers that were relatively well prepared for a drop in energy prices, like Saudi Arabia and the UAE, are now facing weaker growth as governments turn their attention to repairing their finances. Over 60 per cent of respondents in the region reported they had cut back on investment and employment.
Businesses in OECD economies are more upbeat. Most advanced economies are net importers of energy, and so have benefitted from declines in oil prices. The US economy continues to perform relatively well, even if business confidence was undermined last quarter by the strength of the US dollar and the prospect of a rate hike.
The most significant improvement in business confidence was in the eurozone, where the risk of a near-term break-up of the currency area has faded into the distance after the latest Greek bailout.
Rising costs were still a problem, with 40 per cent of businesses reporting concerns.
While commodity prices have fallen, firms in many parts of the world, particularly Asia and Africa, are still having to deal with rapidly rising wages.
Faye Chua, Head of Business Insight at ACCA, said: “There is a troubling long list of risks developing for the majority of global businesses. Many are already, unsurprisingly, reacting to falling opportunities by scaling back on capital and employment investments, which will, in turn, contribute to the further slowdown of the global economy. This, combined with the fact that many governments are having to cut back on spending means there are grounds for concern.”
The survey also shows that despite concerns over global growth, businesses are not expecting much response from governments.
Government spending fell to its lowest-ever level last quarter. Governments that are reliant on revenue from the commodity sector to fund their spending, such as those in Malaysia, Saudi Arabia, the UAE, Brazil and Russia, could easily be forced to tighten their belts. Most businesses in the Caribbean, Central & South America and the Middle East, as well as Western Europe, are now expecting spending cuts.
Download the full report from bit.ly/ACCA-GECSQ42015 ― Bernama
