KUALA LUMPUR (Oct 22): The Malaysian Institute of Economic Research (MIER) Business Conditions Index (BCI) for the third quarter of 2021 (3Q21) indicated that manufacturers have started to regain confidence. 

The quarterly index showed an increase of 9.5 points from 2Q21 to 97 points for 3Q21. Nevertheless, it is still below the threshold of 100 points which indicates optimism. 

On a year-on-year basis, the index gained 10.7 points compared to 3Q20. MIER noted that most of the components of the BCI showed meaningful improvement during this quarter. 

“This was attributed to an increase in domestic demand and export demand, which resulted in an increase in sales. From this, we can see that through a better outlook on the economy, consumer spending begins to increase as well. 

Moreover, even though there is a decline in production and capital investment, the fall is only marginal,” it said. 

MIER added that a positive outlook is expected in the quarter ahead as the Expected Index (EI) increased significantly by 30.4 points to settle at 140.4 points, which is above the 100-point threshold. 

It said the increase in EI can be attributed to the positive reading in expecting domestic and export sales, which stood at 72.9 points and 63.5 points respectively; production volume of 76.9 points; and employment at 55 points, in line with the previous quarter.  

“Manufacturers believe that the economy will recover in the next quarter. Moreover, this shows that the steps that were taken by the government, including the stimulus packages both for the consumers and businesses have shown positive impact,” it said. 

However, capital investment has continued to decline for the second consecutive quarter in 2021, with 19% of the respondents indicating a fall in capital investments for 3Q21 compared to 14% in 2Q21. 

Meanwhile, more than half the respondents expressed that capital investment has remained the same from the previous quarter. 

“The lukewarm status of capital investment is attributed in part to the local economy’s instability. As a result, businesses are more inclined to set aside a larger share of their cash reserves to cover unexpected emergencies. 

Only three sectors, namely plastic products, machinery and equipment as well as motor vehicles and transport equipment, representing 28% of the respondents, experienced an increase in capital investment compared to 34% in the previous quarter,” said MIER. 

Despite that, the survey results show that manufacturers have optimistic expectations of domestic orders, export orders, production volumes, and employment for the next three months and see economic recovery to improve in 4Q21.