KUALA LUMPUR (Sept 6): The Federation of Malaysian Manufacturers (FMM) is urging its members to brace for tougher days ahead next year as various forecasts show that the economic outlook is not as positive as this year.
“Forecasts on world economic outlook, it seems like next year might not be that positive. We manufacturers need to be prepared, and make [ourselves] more competitive. First, they need to upgrade and improve their technology; they also need to reskill and upskill their workforce; and third, they need to take care of their finances,” said the federation’s president Tan Sri Soh Thian Lai.
Nonetheless, Soh believes that local manufacturers are well-equipped to weather through challenges in 2023.
“Depending on how fast the Russia-Ukraine conflict [can be resolved], but overall for the Malaysia side, with the right policy in place, our strong exports as a trading nation, we believe that we will still be able to tide through when the tough time comes.
“We have faced the worst scenario; it cannot be worse than what we faced during the MCO (movement control order) time. Every manufacturer, when they do business, they should expect bad days or tough conditions ahead. We are quite confident that our members will get themselves prepared,” he told reporters at the launch of FMM-Malaysian Institute of Economic Research (MIER) Business Conditions Survey for the first half of 2022 (1H2022).
The survey showed that both local and export sales are expected to slow down for 2H2022, with production volume and capacity utilisation declining.
Soh said manufacturers are taking a cautious approach in 2H amid rising input costs, interest rate, labour shortages, and increasing difficulty to pass through additional costs during inflation.
“All these make our members preserve their investment, so business is likely to slow down in 2H with production costs still remaining at the high side. But members have enough working capital for the next six months,” he said.
Soh said while the survey found that manufacturing activities have improved in 1H, labour shortage issues have held manufacturers back from taking advantage of the strong global demand.
“For the last eight months, a shortage of workers caused the whole industry to lose about RM50 billion, it is a rough estimated figure.
“During the opening of borders, we should take the opportunity to ramp up our output to take advantage of the global demand. But because we are short of workers, we are not able to increase our capacity. We might be able to achieve higher trade volume if we have enough workers,” he said.
The survey also found that worker shortages, coupled with high raw material and labour costs, will remain as the top business obstacles for manufacturers in 2H2022, while other challenges include rising interest rates and the weakening of the ringgit.
“Impact of weak ringgit is towards our cost of production, [in 1H2022] because prices in the export sector also increased, so they offset each other. For 2H2022, selling prices overseas might not be as good as 1H2022, international customers who purchase from Malaysia, some of them may have overstocked, coupled with weak ringgit, that will further erode our profit margin,” Soh explained.
“If our ringgit is too weak, hovering around 4.45 [against the US dollar,] in the long run, [it] will weaken our competitiveness. We hope Bank Negara Malaysia is able to contain the weakening of the ringgit soonest,” he added.